 Carbon option pricing using uncertain differential equationZhe Liu and Yanbin Li Energy, 2025, vol. 320, issue C Abstract: In order to curb the trend of climate change, carbon emission rights are issued to limit the carbon emissions of enterprises. Due to the uncertainty of carbon emission rights demand and the high volatility of carbon price dynamics, it is of great significance for enterprises with high carbon consumption to manage carbon assets. For this purpose, carbon financial derivatives such as carbon options are developing rapidly, which help investors manage returns and risks effectively. Traditionally, stochastic differential equations based on probability theory are used for carbon option pricing. Sometimes, due to unexpected events and limited cognitive abilities of decision-makers, probability theory becomes invalid since its prerequisite, namely frequency stability, cannot be met. Fortunately, uncertainty theory enables to cope with these situations, thus uncertain differential equations are first used to evaluate carbon options in this work. Based on the value prediction and analysis of carbon option, decision making and strategy design for carbon asset management are achieved. Furthermore, it provides a detailed schema and an inspiring case study. Keywords: Carbon emission right; Real option price; Carbon asset management; Uncertain differential equation; Parameter estimation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:320:y:2025:i:c:s0360544225009624 DOI: 10.1016/j.energy.2025.135320 Access Statistics for this article Energy is currently edited by Henrik Lund and Mark J. Kaiser More articles in Energy from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.