A model for energy pricing with stochastic emission costs

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dc.contributor.authorElliott, Roberteng
dc.contributor.authorLyle, Matthew R.eng
dc.contributor.authorMiao, Hongeng
dc.date.accessioned2012-06-13T21:35:47Z
dc.date.available2012-06-13T21:35:47Z
dc.date.issued2010
dc.descriptionArticle deposited according to publisher policy posted on SHERPA/ROMEO, June 13, 2012.eng
dc.description.abstractWe 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.eng
dc.description.refereedYeseng
dc.identifier.citationRobert 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 838-847eng
dc.identifier.doihttp://dx.doi.org/10.11575/PRISM/34057
dc.identifier.issn0140-9883
dc.identifier.urihttp://hdl.handle.net/1880/48998
dc.language.isoengeng
dc.publisherElseviereng
dc.publisher.corporateUniversity of Calgaryeng
dc.publisher.facultyHaskayne School of Businesseng
dc.publisher.hasversionPost-print
dc.publisher.urlhttp://www.journals.elsevier.com/energy-economics/eng
dc.subjectEnergy pricingeng
dc.subjectEnergy derivativeseng
dc.subject.otherEmissions uncertaintyeng
dc.subject.otherProject valuationeng
dc.titleA model for energy pricing with stochastic emission costseng
dc.typejournal articleeng
thesis.degree.disciplineFinanceeng
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