Modeling and forecasting the volatility of carbon dioxide emission allowance prices : a review and comparison of modern volatility models

dc.contributor.authorSegnon, Mawuli K.
dc.contributor.authorLux, Thomas
dc.contributor.authorGupta, Rangan
dc.contributor.emailrangan.gupta@up.ac.zaen_ZA
dc.date.accessioned2017-03-30T07:54:18Z
dc.date.issued2017-03
dc.description.abstractThe launch of the markets for carbon dioxide emission allowances was guided by the aim to use the supposedly efficient price formation mechanism of an organized exchange to optimally allocate a certain quantity of emissions among potential polluters. While this introduction of a centralized trading arrangement should have helped to achieve required emission reductions with a minimum of economic losses, from the viewpoint of market participants it has raised concerns about appropriate risk management provisions to cope with the fluctuations of time-varying allowance prices. The present review provides an overview over state-of-the-art models for price volatility expanding the scope from relatively simple GARCH-type models to models with longterm dependence and regime switches including the relatively recent class of so-called multifractal models. We provide a comparative application of these models to carbon dioxide emission allowance prices from the European Union Emission Trading Scheme and evaluate their performance with up-to-date model comparison tests based on out-of-sample forecasts of future volatility and value-at-risk.en_ZA
dc.description.departmentEconomicsen_ZA
dc.description.embargo2018-03-31
dc.description.librarianhb2017en_ZA
dc.description.urihttp://www.elsevier.com/locate/rseren_ZA
dc.identifier.citationSegnon, M, Lux, T & Gupta, R 2017, 'Modeling and forecasting the volatility of carbon dioxide emission allowance prices : a review and comparison of modern volatility models', Renewable and Sustainable Energy Reviews, vol. 69, pp. 692-704.en_ZA
dc.identifier.issn1364-0321 (print)
dc.identifier.issn1879-0690 (online)
dc.identifier.other/10.1016/j.rser.2016.11.060
dc.identifier.urihttp://hdl.handle.net/2263/59586
dc.language.isoenen_ZA
dc.publisherElsevieren_ZA
dc.rights© 2016 Elsevier Ltd. All rights reserved. Notice : this is the author’s version of a work that was accepted for publication in Renewable and Sustainable Energy Reviews . Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. A definitive version was subsequently published in Renewable and Sustainable Energy Reviews, vol. 69, pp. 692-704, 2017. doi : /10.1016/j.rser.2016.11.060.en_ZA
dc.subjectCarbon dioxide emission allowance pricesen_ZA
dc.subjectGARCHen_ZA
dc.subjectMarkov-switching GARCHen_ZA
dc.subjectFIGARCHen_ZA
dc.subjectMultifractal processesen_ZA
dc.subjectSPA testen_ZA
dc.subjectEncompassing testen_ZA
dc.subjectBacktestingen_ZA
dc.titleModeling and forecasting the volatility of carbon dioxide emission allowance prices : a review and comparison of modern volatility modelsen_ZA
dc.typePostprint Articleen_ZA

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