WSEAS Transactions on Systems
Print ISSN: 1109-2777, E-ISSN: 2224-2678
Volume 11, 2012
The Valuation of Futures Options for Emissions Allowances under the Term Structure of Stochastic Multi-Factors
Authors: , , , ,
Abstract: We develop the general model of the futures options valuation under the term structure of stochastic multi factors. Our model analysis suggest the futures options function carry information about the volatility and adjustment speed of arbitrary multi factors, the correlation among multi-factors, and the time to maturity of futures and options contract. We provide numerical examples compare their difference between the actual and theoretical futures options valuation. Our empirical results show the term structure of arbitrary multi factors has significant effect on the futures options valuation for CO2 emissions allowances, we can estimate the theoretical futures options valuation by using historical market information. We can determine the reasonable options price for CO2 emissions allowances and then make right options trading policy in the emissions allowances options markets.
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Keywords: Emissions allowances, term structure, stochastic multi-factor, futures pricing, kalman filter, volatility, futures options pricing