Apr 2019 - Mar 2020

Math-Fi seminar on 3 Oct.

2019.09.30 Mon up
  • Date: 3 Oct. (Thu.)
  • Place: W.W. 6th-floor, Colloquium Room
  • Time: 16:30-18:00
  • Speaker: Dan Crisan (Imperial College London)
  • Title: Modelling multi-period carbon markets using singular forward backward SDEs
  • Abstract:
I will introduce a model the evolution of emissions and the price of emissions allowances in a carbon market such as the European Union Emissions Trading System (EU ETSP). The model accounts for multiple trading periods (and phases) and multiple times at which compliance can occur. At the end of each trading period, the participating firms must surrender allowances for the emissions made during that period, but any excess allowances can be used for compliance in the following periods. We show that the multi-period allowance pricing problem is well-posed for various mechanisms linking the trading periods (such as banking, borrowing and withdrawals). The results are based on the analysis of a forward-backward stochastic differential equation with the following special characteristics: i. the forward and backward components are coupled,  ii. the final condition is singular and iii. the forward component of the model is degenerate. I will also introduce an infinite period model, that is, a model for carbon market with a sequence of compliance times and no end date. I will show that, under appropriate conditions, the value function for the multi-period pricing problem converges, as the number of periods increases, to a value function for this infinite period model. This is joint work with Jean-Francois Chassagneux (Paris Diderot) and Hinesh Chotai (Citybank).

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