Abstract
Knowledge of the statistical distribution of the prices of emission allowances, and their forecastability, are crucial in constructing, among other things, purchasing and risk management strategies in the emissions-constrained markets. This paper analyzes the two emission permits markets, CO2 in Europe, and SO2 in the US, and investigates a model for dealing with the unique stylized facts of this type of data. Its effectiveness in terms of model fit and out-of-sample value-at-risk-forecasting, as compared to models commonly used in risk-forecasting contexts, is demonstrated.
Original language | English |
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Pages (from-to) | 2022-2032 |
Number of pages | 11 |
Journal | Journal of Banking and Finance |
Volume | 32 |
Issue number | 10 |
DOIs | |
Publication status | Published - Oct 2008 |
Keywords / Materials (for Non-textual outputs)
- emission allowances
- GARCH
- greenhouse gases
- mixture models
- value-at-risk