PREEM Mini-Workshop: Modeling of Emissions Markets and Valuation of Carbon Options
Modeling of Emissions Markets and Valuation of Carbon Options
Dr. Juri HINZ
Tuesday 1 November 2011 Time: 15:00 - 16:30
Venue: 1.16.11 (Room 11, Level 16, UTS Tower Building), 15 Broadway, Sydney
PRESENTER: DR JURI HINZ worked as Senior Scientist at ETH Zurich, where he led several research projects. In 2007 he was awarded the Prize of Excellence in Practice by the Association of European Operations Research Society.
Since 2007, Dr. Juri Hinz has been Associate Professor for Financial Mathematics at the National University of Singapore and since 2010 he has held the position of Head of Center for Integral Logistics at Zurich University of Applied Science. His publications deal with portfolio optimization, real-time electricity auctions, modeling of day-ahead electricity prices, and pricing of commodity derivatives.
Abstract of the presentation
The introduction of marketable pollution permits is widely considered as an appropriate way to combat environmental problems on a global scale. According to theoretical arguments, a properly designed emission trading system should help reduce pollution at low social costs. Nowadays, environmental markets are being established around the world. Their practice provides a stress test for the underlying economic theory and raise a lively discussion about the advantages and shortcomings of a number of existing emission trading schemes.
In the first part of the workshop we discuss in detail the core principles laying foundation to quantitative understanding of emission markets and elaborate on mathematical problems and applications arising in this context.
In the second part of the workshop we provide an overview of the EU ETS which is the most mature emission market. The specifics of European options on carbon futures, that have been introduced and traded, will be discussed with an intention to fill in the existing gap in their pricing methodology. Under EU ETS regulations, we will consider the two-period markets illustrating that the martingales resulting in two-valued random variables can be used as basic building blocks for modelling the risk-neutral futures price dynamics. We suggest a diffusion model for the two-valued martingales, flexible in terms of capturing the time- and asset space-changing volatility and capable of matching the observed historical or implied volatility of underlying future.
The overview of the suggested methodology will also include the discussion of numerical aspects of algorithms used for option valuation and model calibration.
The software implementation of the suggested methodology will be illustrated on practical examples.
RSVP: If you would like to attend, please email Mrs Heather Wilson-Steel
(Heather.Wilson-Steel@uts.edu.au), we will need this information for tea/coffee/drinks catering purposes.
- 1 November 2011
- 15:00 - 16:30
- City - Broadway CB01 Tower
- All Welcome
- Heather Wilson-Steel