Please use this identifier to cite or link to this item: http://hdl.handle.net/1880/48998
Title: A model for energy pricing with stochastic emission costs
Authors: Elliott, Robert
Lyle, Matthew R.
Miao, Hong
Keywords: Energy pricing;Energy derivatives
Issue Date: 2010
Publisher: Elsevier
Citation: Robert J. Elliott, Matthew R. Lyle, Hong Miao, A model for energy pricing with stochastic emission costs, Energy Economics, Volume 32, Issue 4, July 2010, Pages 838-847
Abstract: We use a supply-demand approach to value energy products exposed to emission cost uncertainty. We find closed form solutions for a number of popularly traded energy derivatives such as: forwards, European call options written on spot prices and European Call options written on forward contracts. Our modeling approach is to first construct noisy supply and demand processes and then equate them to find an equilibrium price. This approach is very general while still allowing for sensitivity analysis within a valuation setting. Our assumption is that, in the presence of emission costs, traditional supply growth will slow down causing output prices of energy products to become more costly over time. However, emission costs do not immediately cause output price appreciation, but instead expose individual projects, particularly those with high emission outputs, to much more extreme risks through the cost side of their profit stream. Our results have implications for hedging and pricing for producers operating in areas facing a stochastic emission cost environment.
Description: Article deposited according to publisher policy posted on SHERPA/ROMEO, June 13, 2012.
URI: http://hdl.handle.net/1880/48998
ISSN: 0140-9883
Appears in Collections:Elliott, Robert

Files in This Item:
File Description SizeFormat 
Elliott_Model_Energy_2009_postprint_file.pdf352.55 kBAdobe PDFView/Open


Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.