Pricing Method Of Real Option And Mathematical Modeling In The Carbon Emissions Trading

As environmental issue becomes increasingly prominent, more and more research is carried out on carbon emission trading. As a kind of financial derivative, carbon emission trading market enjoys a vast prospect. However, the pricing of emission rights is one of important issues to be studied in this regard.By mainly utilizing ideas and methodologies of real option, this paper makes a research on the pricing of carbon emission rights under uncertain market conditions. Compared with financial option, real option is kind of financial derivative to deal with non-financial assets with uncertain investment results; financial option and real option are similar, but not identical. As the real option pricing method is applied in the carbon emission trading, it bases such a pricing method on pricing method of financial option. For example, analysis method contains dynamic programming and contingent claims approaches; numerical method has binomial tree and Monte Carlo simulation methods. As carbon emission rights involve carbon emission permit, in the end, this paper uses dynamic model to calculate and analyze the price of such permits. Accordingly, evaluation model in the carbon emission market is discussed.