Quantum carbon finance: Carbon emission rights option pricing and investment decision

Dongsheng Zhai, Tianrui Zhang, Guoqiang Liang and Baoliu Liu

Energy Economics, 2024, vol. 134, issue C

Abstract: The carbon emission rights option (CERO), as a real option, can be used to measure market volatility risk and help enterprises obtain income. However, traditional option pricing models mostly operate under risk neutrality and are unsuitable for CERO pricing. Quantum finance, as a branch of economic physics, can effectively improve the uncertain behavior of financial markets. Therefore, in order to obtain more reasonable results, the study designs a quantum Monte Carlo simulation method for pricing CERO under risk uncertainty. Firstly, real options theory, quantum computing, Monte Carlo simulation, and stochastic volatility (SV) model are combined to achieve quantum state preparation and payoff calculation on quantum circuits. Then, quantum algorithms are used to achieve CERO dynamic pricing. Finally, a case study is conducted using data from the Beijing Green Exchange to verify the convergence and rationality of Quantum amplitude estimation (QAE) and its optimization algorithm in CERO pricing. The study results indicate that among the four QAE algorithms adopted, the results of two quantum algorithms are close to the traditional method and have good convergence. Compared to traditional method, the study solves the problem of difficult parameter determination in CERO pricing and reduces the results subjectivity. However, not all quantum algorithms are suitable for CERO pricing. The study further designed various carbon emission trading decisions among enterprises based on pricing results, providing a new approach for the management and operation of carbon assets in enterprises.

Keywords: Real options; CERO pricing; Monte Carlo simulation; SV model; Quantum circuits; Quantum computing (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988324003360
Full text for ScienceDirect subscribers only

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:eee:eneeco:v:134:y:2024:i:c:s0140988324003360

DOI: 10.1016/j.eneco.2024.107628

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().