Allowance-based Carbon Options Pricing Strategy and Asset Management Research Progress

Abstract

Under the issue of global warming and environmental protection, low-carbon development has become an unshakable responsibility for governments worldwide. In China, the national carbon emission trading market established in 2021, which promotes the economic development of carbon derivatives. In order to facilitate the trading system, carbon options pricing theory has become a centerpiece of academic attention. This paper reviews the study progress in detail in the area of allowance-based carbon options pricing strategy carbon internationally, and makes an analysis of the application and management in international carbon markets. The mainstream pricing models include the Black-Scholes and the Monte Carlo option pricing models. On this basis, the carbon option prices estimated using the GARCH model and fractal Brownian motion have a higher degree of fitted value. In addition, this paper analyzes the application and management of carbon options in the carbon market. The carbon option helps reduce the carbon trading risk and the spendings on emission reduction for enterprises. This research intends to give a reference for the subsequent theoretical exploration of carbon options and promote the growth of the derivatives market.