English, Article, Journal or magazine article edition: Options introduction and volatility in the EU ETS Benoît SEVI; Julien Chevallier; Yannick Le Pen; ...

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Bookmark: http://trove.nla.gov.au/version/212325
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Options Introduction and Volatility in the EU ETS
Author
  • Benoît SEVI
  • Julien Chevallier
  • Yannick Le Pen
  • Benoît Sévi
Physical Description
  • preprint
Notes
  • To improve risk management in the European Union Emissions Trading Scheme (EU ETS), the European Climate Exchange (ECX) has introduced option instruments in October 2006 after regulatory authorization. The central question we address is: can we identify a potential destabilizing effect of the introduction of options on the underlying market (EU ETS futures)? Indeed, the literature on commodities futures suggest that the introduction of derivatives may either decrease (due to more market depth) or increase (due to more speculation) volatility. As the identification of these effects ultimately remains an empirical question, we use daily data from April 2005 to April 2008 to document volatility behavior in the EU ETS. By instrumenting various GARCH models, endogenous break tests, and rolling window estimations, our results overall suggest that the introduction of the option market had no effect on the volatility in the EU ETS. These findings are robust to other likely influences linked to energy and commodity markets.
  • RePEc:mop:credwp:09.07.85
  • EU ETS, Option prices, Volatility, GARCH, Rolling Estimation, Endogenous Structural Break Detection
  • RePEc:hal:wpaper:halshs-00405709_v1
Language
  • English
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