Please use this identifier to cite or link to this item:
https://hdl.handle.net/2440/58671
Citations | ||
Scopus | Web of Science® | Altmetric |
---|---|---|
?
|
?
|
Type: | Journal article |
Title: | A model for energy pricing with stochastic emission costs |
Author: | Elliott, R. Lyle, M. Miao, H. |
Citation: | Energy Economics, 2010; 32(4 Sp Iss):838-847 |
Publisher: | Elsevier Science BV |
Issue Date: | 2010 |
ISSN: | 0140-9883 1873-6181 |
Statement of Responsibility: | Robert J. Elliott, Matthew R. Lyle and Hong Miao |
Abstract: | We use a supply-demand approach to value energy products exposed to emission cost uncertainty. We find closed form solutions for a number of popularly traded energy derivatives such as: forwards, European call options written on spot prices and European Call options written on forward contracts. Our modeling approach is to first construct noisy supply and demand processes and then equate them to find an equilibrium price. This approach is very general while still allowing for sensitivity analysis within a valuation setting. Our assumption is that, in the presence of emission costs, traditional supply growth will slow down causing output prices of energy products to become more costly over time. However, emission costs do not immediately cause output price appreciation, but instead expose individual projects, particularly those with high emission outputs, to much more extreme risks through the cost side of their profit stream. Our results have implications for hedging and pricing for producers operating in areas facing a stochastic emission cost environment. |
Keywords: | Energy pricing Energy derivatives Emissions uncertainty Project valuation |
Rights: | Copyright © 2010 Elsevier B.V. All rights reserved. ScienceDirect® is a registered trademark of Elsevier B.V. |
DOI: | 10.1016/j.eneco.2009.11.001 |
Published version: | http://dx.doi.org/10.1016/j.eneco.2009.11.001 |
Appears in Collections: | Aurora harvest Mathematical Sciences publications |
Files in This Item:
There are no files associated with this item.
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.