We found a match
Your institution may have rights to this item. Sign in to continue.
- Title
Emission Allowance as a Derivative on Commodity-Spread.
- Authors
Nakajima, Katsushi; Ohashi, Kazuhiko
- Abstract
We provide a valuation formula for emission allowance. Assuming that the value of emission allowance on the last day of a trading phase is equal to a spread of commodity prices (e.g. electricity and natural gas) when the spread is positive and less than the penalty, we show that the emission allowance price is equal to the value of a portfolio of European call options on the spread of the commodities. Using the formula, we obtain a hedging strategy for emission allowance trading. We also empirically analyze option value embedded in emission allowance, and find by numerical analysis that the option value is relatively large.
- Subjects
DERIVATIVE securities; COMMODITY futures; PRICES; HEDGE funds; NUMERICAL analysis; EMISSIONS trading
- Publication
Asia-Pacific Financial Markets, 2013, Vol 20, Issue 2, p183
- ISSN
1387-2834
- Publication type
Article
- DOI
10.1007/s10690-013-9164-5