A Research On The Value At Risk Of International Carbon Futures

In order to deal with the adverse effects on climate change to human development, the international community has reached a series of international conventions, meanwhile the international carbon futures’ exchange emerged as the times require. Judging from the present development of the international carbon futures, the EU has unshakable dominance in this area. In the European Climate Exchange, the carbon futures exchange frequently and its Price tends to be stable gradually. But as new derivative, the track of its price is hardly to be described. If investment decision-making errors, investors may have a huge losses even initiate systematic finance risk. The researches on the theory of carbon futures’ risk are abundant, while the empirical study is less. So this paper uses VaR model based on European exchange data analyze the value at risk of international carbon futures, and offer some proposals about risk management of carbon exchange.This paper conduct study in six chapters:chapter one sum up domestic and overseas reserches and put forward this paper’s research approach. Chapter two use economics theory to analyze that each subject how to improve their benefit level and that the society how to reach pareto improvement. It proves that international carbon exchange is practicable. After that this paper studies the mechanism of carbon futures and sum up the main risks of carbon futures exchange. Chapter three sum up the current situation of carbon futures exchange and discuss the trend of European carbon exchange. Chapter four introduce the VaR model study its fundamental assumption, and analyze its applicability in carbon futures’risk management. Then this paper uses GARCH theory discuss the mathematical method to analyze carbon exchange risk. Chapter five is based on the real transaction data from the European Climate Exchange and uses the classical VaR method to measure the risk of carbon futures trading. Because the selected samples is large and the holding period what I set is short, this paper assumes that the sequence of return rate in the VaR model is normally distributed, so it can be used in GARCH model under parameters method to calculate. The author find that, firstly, the residual sequence has obvious "fat-tail" phenomenon, GARCH model dependent on generalized error distribution can overcome this problem; secondly, under the confidence level of90%and95%using GARCH-GED model can estimate a reliable VaR; thirdly, the VaR of EUADEC-14is higher than others, so its risk exposure is more. In chapter six this paper comes to conclusion as follows:firstly, learning the EU’s experience in carbon futures exchange may help China carry out obligations of emission reduction; secondly, the carbon market participants should assess the risk prudently; thirdly, with the help of VaR model can quantize the carbon futures exchange risk.