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Abstract
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The first part of the talk will be devoted to a review of the mathematical models used by economists and financial engineers for the quantitative analysis of cap-and-trade schemes. We will concentrate on models inspired by the European Union Emissions Trading Scheme, and we will discuss design issues related to the existing allocation proedures and those touted by policy pundits in the US. The second part of the talk will address some of the puzzling questions raised by the prices of options on EU Allowances published by the exchanges: Do they really use Black's formula to compute these prices? Would that be reasonable? How can we reconcile these prices with the results of the existing equilibrium theories? How do these models suggest we price these options? |
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