Green Bond Pricing and Optimization Based on Carbon Emission Trading and Subsidies: From the Perspective of Externalities

Yuanfeng Hu, Yixiang Tian () and Luping Zhang
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Yuanfeng Hu: School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, China
Yixiang Tian: School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, China
Luping Zhang: School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, China

Sustainability, 2023, vol. 15, issue 10, 1-20

Abstract: In this paper, we establish a model based on real options theory and fractional Brownian motion (FBM) with jumps to price green bonds, and thus alleviate the externalities of green bonds. We assume that the floating value of green bonds is linked to the carbon price. The carbon emission trading mechanism and government subsidy policy are introduced into this model, and the expression is derived from the stochastic differential utility framework based on the fast Fourier transform method. Based on the numerical analysis and the simulations, this paper analyzes when governments are facing financial and carbon emission constraints and how policymakers balance the allocation between carbon allowances and government subsidies to help green bonds reach the exogenous equilibrium price. Our results have implications in terms of optimizing the distribution of economic resources by the reasonable pricing of green bonds. It is in line with the current theme of global energy conservation and emission reduction, and also has certain guiding significance for the development of the carbon emission trading market.

Keywords: green bond pricing; externalities; government subsidies; carbon emission trading; fractional Brownian motion (FBM) (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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