Pricing derivatives with modeling CO2emission allowance using a regime-switching jump diffusion model: with regime-switching risk premium
研究了BlueNext现货EUA收益率的跳跃和波动聚集特征，提出一个含隐马尔可夫链的体制转换跳跃扩散模型来捕捉这些特征，并推导了期货期权定价公式，实证表明该模型比普通跳跃扩散模型更完整。
Carbon markets trade the spot European Union Allowance (EUA), with one EUA providing the right to emit one tone of carbon dioxide (CO2). We examine the spot EUA returns in BlueNext that exhibit jumps and a volatility clustering feature. We propose a regime-switching jump diffusion model (RSJM) with a hidden Markov chain to capture not only a volatility clustering feature, but also the dynamics of the spot EUA returns that are influenced by change in the CO2 emission economic conditions. In addition, the switching jump intensities of the RSJM are shown to be affected by change in the carbon-market macroeconomic environment. We further derive the theoretical futures-option prices with a constant convenience yield under the RSJM via the generalized Esscher transform where regime-switching risk is priced with a risk premium. The empirical study shows that the derived futures-option pricing model under the RSJM with regime-switching risk is a more complete model than a jump diffusion model for pricing CO2 options.