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Modelling the convenience yield in carbon prices using daily and realized measures

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  • Julien Chevallier

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article investigates the modelling of the convenience yield in the European carbon market by using daily and intradaily measures of volatility. The convenience yield stems from differences in spot and futures prices, and can explain why firms hold inventories. The main findings are that (i) a simple AR(4) process best describes the 2008 convenience yield, and (ii) there exists a non linear relation between spot and futures prices. The approach developed in this article captures 74% of the explanatory power for the 2008 convenience yield variable in an autoregressive framework, with carbon spot price levels, moving averages and carbon futures realized volatility measures as exogenous regressors. These results are of interest for energy utilities, risk-managers, and traders exposed to the variation of carbon prices.

Suggested Citation

  • Julien Chevallier, 2010. "Modelling the convenience yield in carbon prices using daily and realized measures," Working Papers halshs-00463921, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00463921
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00463921v2
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    References listed on IDEAS

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    1. Borak, Szymon & Härdle, Wolfgang Karl & Trück, Stefan & Weron, Rafał, 2006. "Convenience yields for CO2 emission allowance futures contracts," SFB 649 Discussion Papers 2006-076, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    Cited by:

    1. Don Bredin and John Parsons, 2016. "Why is Spot Carbon so Cheap and Future Carbon so Dear? The Term Structure of Carbon Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).

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    More about this item

    Keywords

    EU ETS; High frequency Data; Realized Volatility; Convenience Yield; Carbon Price;
    All these keywords.

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