Inderscience Publishers

Links between spot and futures allowances: ECX and EEX markets comparison

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This paper discusses the relation of spot and futures CO
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allowances, used to model and test forward premium and convenience yield (CY) concepts during 2005–2011. We analyse allowances futures from an ex–post perspective and find positive forward premia for both Phase I and Phase II and for different European markets: European Energy Exchange (EEX) and European Climate Exchange (ECX), indicating the prevalence of contango, for the majority of the futures contracts under analysis. When testing for factors influencing both the forward premium and the convenience yield we see a negative influence of spot CO
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price volatility in EEX, but for ECX results are dubious with respect to the negative influence of volatility over the convenience yield. Results indicate that the convenience yield positively influences the forward premium, while being positively influenced by the spot, being results independent of the volatility forecast used and important for risk management purposes.

Keywords: CO2 emission allowances, EU ETS, convenience yield, risk premium, carbon emissions, carbon dioxide, European Energy Exchange, EEX, European Climate Exchange, ECX, price volatility, risk management, carbon trading, emissions trading

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