Cutting edge: Pricing carbon-linked bonds
Within the framework of Phase II of the EU ETS, which has consecutive compliance periods that allow banking and borrowing, Daniel Bloch expresses the dynamics of Certified Emission Reductions as a function of European Union Allowances, and computes the value of carbon bonds and other index-linked carbon derivatives
The global move to reduce the production of greenhouse gases (GHG) has led to the rapid growth of carbon markets where companies and countries can meet targets by trading carbon emission allowances for investment in abatement projects (see Bloch, 2011b).
However, since the empirical analysis on the main European Union Allowances (EUAs)1 from the European Union Emissions Trading Scheme (EU ETS) markets in Europe, performed by Borak et al (2006) and Daskalakis et al (2006), evidence of extreme
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