CARBON BOND PRICING AND MODEL SELECTION

Jianfen Feng, Xiaowei Huang (), Juyue Hou (), Chunxia Wang () and Yan Zeng ()
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Jianfen Feng: School of Banking and Finance, University of International Business and Economics, Beijing, P. R. China
Xiaowei Huang: School of Banking and Finance, University of International Business and Economics, Beijing, P. R. China
Juyue Hou: School of Banking and Finance, University of International Business and Economics, Beijing, P. R. China
Chunxia Wang: School of Banking and Finance, University of International Business and Economics, Beijing, P. R. China
Yan Zeng: Institute of International Economy, University of International Business and Economics, Beijing, P. R. China

The Singapore Economic Review (SER), 2018, vol. 63, issue 02, 465-481

Abstract: This paper discusses how to value a carbon bond and how to choose models for it like CGNPC wind additional carbon benefits of medium-term notes, the first Carbon-bond in China. First, the fractional process with jumps is used to model CERs spot price in BlueNext market and to price a numerical carbon bond. Then, through sensitive analysis for model parameters, the fractional process without jumps is suggested to model CERs spot price finally, but the fractional process with jumps may be more suitable for EA in China. Furthermore, there also discusses how to choose discount rate for those derivatives which are paid off by one currency but its underlying is quoted by another.

Keywords: Carbon bonds; fractional Brownian motion; fractional process with jumps; sensitivity analysis (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S0217590817400215

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