Carbon Option Product Design and Pricing Study: Based on Modified Fractional Brownian Motion Optimized by EGARCH Model

Xuanrong Chen; Aijun Li; Wei Wang

doi:10.54691/az5q1k65

Authors

Xuanrong Chen
Aijun Li
Wei Wang

DOI:

https://doi.org/10.54691/az5q1k65

Keywords:

Carbon Emission Allowances; EGRACH; Fractional Brownian Motion.

Abstract

In the context of the "dual-carbon" vision strategy and the development of carbon finance, the development of China's carbon market is very promising, but the system of carbon futures, carbon options and other financial products has not yet been formed. In view of the experience of the European Climate Exchange (ECX) in carbon option contracts, this study aims to design an option product applicable to the Chinese carbon market. The article takes the carbon emission allowances in the national carbon market as the underlying asset of the options, selects the national carbon emission allowance trading price data for the period from July 16, 2021 to December 31, 2022, and uses the EGARCH-fractional Brownian Motion option pricing model to formulate a reasonable call price of the carbon options.

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