Cutting edge technical: Carbon derivatives pricing

Carbon derivatives pricing: an arbitrageable market

Energy Risk - Cutting edge technical

Evidence of extreme volatility in the European permit markets suggests the urgent need for the development of selective hedging techniques such as futures contracts and option instruments. As a result, a valid price model is required for pricing financial instruments or projects whose value derives from the future carbon dioxide (CO2) spot permit price. Due to the recent introduction in the market of option-like instruments for hedging purposes, various models were developed to approximate the d