Risk Assessment for a Structured Product Specific to the CO2 Emission Permits Market

Posted: 23 Oct 2012 Last revised: 21 Feb 2014

See all articles by Marius Frunza

Marius Frunza

University Paris Dauphine

Dominique Guegan

Université Paris I Panthéon-Sorbonne

Date Written: February 13, 2012

Abstract

The aim of this work is to use a new modelling technique for CO2 emission prices, in order to estimate the risk associated with a related, structured product. After a short discussion of the speci ficities of this market, we investigate several modelling methods for CO2 emission prices. We use these results for risk modeling of the swap between two CO2 related instruments: the European Union Allowances and the Certifi ed Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of diff erent models on the risk measure and the allocated capital.

Keywords: Carbon, Generalized Hyperbolic Distribution, Value-at-Risk, CER, EUA, Swap

Suggested Citation

Frunza, Marius and Guegan, Dominique, Risk Assessment for a Structured Product Specific to the CO2 Emission Permits Market (February 13, 2012). Journal of Alternative Investments, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2166008

Marius Frunza (Contact Author)

University Paris Dauphine ( email )

Place du Maréchal de Lattre de Tassigny - 75775 PA
Paris, 75775
France

Dominique Guegan

Université Paris I Panthéon-Sorbonne ( email )

106 avenue de lhopital
75634 Paris Cedex 13
Paris, IL
France

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