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

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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 specificities 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 Certified Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of different models on the risk measure and the allocated capital

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  • Marius-Cristian Frunza & Dominique Guegan, 2010. "Risk assessment for a Structured Product Specific to the CO2 Emission Permits Market," Documents de travail du Centre d'Economie de la Sorbonne 10054, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:10054
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    File URL: http://mse.univ-paris1.fr/pub/mse/CES2010/10054.pdf
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    1. Abdou Kâ Diongue & Dominique Guegan & Rodney C. Wolff, 2010. "BL-GARCH model with elliptical distributed innovations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00368340, HAL.
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    More about this item

    Keywords

    Carbon; generalized hyperbolic distribution; value-at-risk; CER; EUA; Swap;
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