Dynamic factor analysis of carbon allowances prices: From classic Arbitrage Pricing Theory to Switching Regimes

Marius-Cristian Frunza (), Dominique Guegan () and Antonin Lassoudière ()
Additional contact information
Marius-Cristian Frunza: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Sagacarbon - Sagacarbon SA
Dominique Guegan: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Antonin Lassoudière: Sagacarbon - Sagacarbon SA

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: The aim of this paper is to identify the fundamental factors that drive the allowances market and to built an APT-like model in order to provide accurate forecasts for CO2. We show that historic dependency patterns emphasis energy, natural gas, oil, coal and equity indexes as major factors driving the carbon allowances prices. There is strong evidence that model residuals are heavily tailed and asymmetric, thereby generalized hyperbolic distribution provides with the best fit results. Introducing dynamics inside the parameters of the APT model via a Hidden Markov Chain Model outperforms the results obtained with a static approach. Empirical results clearly indicate that this model could be used for price forecasting, that it is effective in and out of sample producing consisten results in allowances futures price prediction.

Keywords: forecast; energy; Abritrage Pricing Theory; switching regimes; hidden Markov Chain Model; Carbon; Carbone; EUA; modèle APT; modèle de Markov; précision (search for similar items in EconPapers)
Date: 2010-06
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00505145v1
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in 2010

Downloads: (external link)
https://shs.hal.science/halshs-00505145v1/document (application/pdf)

Related works:
Working Paper: Dynamic factor analysis of carbon allowances prices: From classic Arbitrage Pricing Theory to Switching Regimes (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00505145

Access Statistics for this paper

More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().