Design Of Carbon Option Product Based On Chinese Emission Allowances

On September 22,2020,President Xi Jinping delivered an important speech at the General Debate of the 75 th Session of the United Nations General Assembly.He pointed out that China will increase its nationally determined contributions,adopt more effective policies and measures,strive to peak its carbon dioxide emissions by 2030,and strive to achieve carbon neutrality by 2060.In this context,Guangzhou Futures Exchange,a new futures exchange with carbon emissions as the first trading variety in China,will be born soon.China’s carbon market has great potential and broad prospects,and meanwhile,it has given birth to a large number of studies on carbon trading and carbon finance.China’s carbon market started to open in 2013,and a series of carbon spot and carbon financial products based on spot have been gradually produced in China,such as carbon forwards,etc.,but up to now,there is still a lack of financial derivatives such as carbon futures and carbon options in China,and the launch of carbon options will be of great significance for improving the liquidity of carbon market,calming the fluctuation of carbon price and promoting the construction process of China’s carbon market.Therefore,this paper studies the carbon market and designs carbon option products in line with the actual situation of our country.Firstly,this paper analyzes the research status of carbon market and carbon options in China from the aspects of trading subjects and underlying asset markets,and analyzes the favorable conditions for the introduction of carbon options in China.The second,this paper refers to the carbon option product contracts listed and traded on the European Climate Exchange to design the elements of carbon option contracts in China,which mainly include basic elements,risk control elements and delivery elements.Thirdly,this paper takes carbon emission quota as the underlying asset of carbon option,takes Guangzhou carbon emission market as the research object,and selects the price data of carbon emission quota trading in Guangzhou from January 1,2016 to December 31,2020 as the research sample.Through statistical analysis of the data,the characteristics of sharp peaks and thick tails of the data were found.Therefore,this paper estimates the volatility of the underlying asset earnings by combining the AR-GARCH model,and puts it into the B-S model,and uses the B-S option pricing model to calculate the initial reasonable price of the call option and put option of carbon emission quota respectively.Finally,this paper analyzes the specific application fields and broad market prospects of carbon options in China,and puts forward the promotion plan of carbon options and relevant suggestions to promote the development of carbon options according to the actual situation in China.