Estimating the 'value at risk' of EUA futures prices based on the extreme value theory

Zhi-Fu Mi and Yue-Jun Zhang ()

No 9, CEEP-BIT Working Papers from Center for Energy and Environmental Policy Research (CEEP), Beijing Institute of Technology

Abstract: This paper employs the Extreme Value Theory (EVT) to measure the 'Value at Risk' (VaR) of EUA futures prices. The results show that during the sample period, first, the EVT approach can be used to reliably measure the extreme risk of carbon futures markets of the EU ETS, both for Phase I and Phase II. Second, the downside extreme risk of carbon futures market outweighs the upside risk, with evident asymmetric features. Moreover, the average VaR of carbon futures contract DEC10 proves much less than that of contract DEC07 during the sample period.

Keywords: EU ETS; Extreme Value Theory (EVT); Value at Risk (VaR); Carbon Market (search for similar items in EconPapers)
JEL-codes: C13 Q58 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2010-07
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Journal Article: Estimating the 'value at risk' of EUA futures prices based on the extreme value theory (2011)
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