EconPapers    
Economics at your fingertips  
 

Volatility forecasting of carbon prices using factor models

Julien Chevallier

Economics Bulletin, 2010, vol. 30, issue 2, 1642-1660

Abstract: This article develops a forecasting exercise of the volatility of EUA spot, EUA futures, and CER futures carbon prices (modeled after an AR(1)-GARCH(1,1)) using two dynamic factors as exogenous regressors that were extracted from a Factor Augmented VAR model (Bernanke et al. (2005)). The dataset includes 115 macroeconomic, financial and commodities indicators with daily frequency from April 4, 2008 through January 25, 2010 totalling 463 observations that capture the strong uncertainties emerging on the carbon market. The main result shows that the best forecasting performance for the volatility of carbon prices is achieved for the model including the dynamic factors as exogenous regressors, which can be useful to inform hedging or speculative trading strategies by energy utilities, financial market players and risk managers.

Keywords: Volatility Forecasting; Carbon price; Factor models (search for similar items in EconPapers)
JEL-codes: C3 Q4 (search for similar items in EconPapers)
Date: 2010-06-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I2-P151.pdf (application/pdf)

Related works:
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:ebl:ecbull:eb-10-00104

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().

 
Page updated 2019-11-24
Handle: RePEc:ebl:ecbull:eb-10-00104