Research On Carbon Option Pricing Based On Improved B-S Model

With the rapid development of the global economy,the climate problems caused by greenhouse gas emissions are becoming more and more serious.In order to control the trend of climate warming,countries around the world have started to set carbon emission reduction targets and explore the road of low-carbon development.In order to achieve the goal of"carbon peaking and carbon neutral",China has actively carried out carbon emissions trading,and carbon emissions trading has developed from regional pilot trading to national trading,and China’s carbon market has great potential for development.Beijing.Shanghai and other regions have launched carbon spot and spot-based carbon financial derivatives,but up to now,there is still a relative lack of carbon futures,carbon options and other financial derivatives in China’s carbon market.Carbon options can smooth out carbon price volatility and improve carbon market liquidity,which are crucial to the sustainable development of the carbon market,while reasonable option pricing is the key to carbon option product design.Therefore,this paper selects carbon options for pricing research to provide a reference for the introduction of carbon option products in China’s carbon market.This paper is mainly based on carbon market,option pricing and other related theories to study the pricing of carbon options.This paper chooses the B-S option pricing model as the basis,but the traditional B-S model cannot fully capture the volatility agglomeration phenomenon existing in the carbon financial market,and it is difficult to fit the characteristics of the spike and thick-tail distribution of the underlying asset returns in the carbon financial market.Therefore,in order to address the shortcomings of the traditional B-S model,this paper introduces skewness and kurtosis to modify the B-S model,and uses the GARCH model to calculate the volatility,and constructs a GARCH-B-S carbon option pricing model with the introduction of skewness and kurtosis.In order to verify the pricing effect of the model,the traditional B-S carbon option pricing model,the B-S carbon option pricing model with the introduction of skewness and kurtosis and the GARCH-B-S carbon option pricing model are also constructed in this paper for comparison.In the empirical part of this paper,we selected EUA option trading data from the European Energy Exchange and used the four models established to calculate carbon option prices,and compared them with the actual prices and conducted error analysis.The results of the study found that:the logarithmic yield series of the underlying asset EUA futures has typical financial yield series characteristics,i.e.,spikes and thick tails,volatility aggregation,smoothness and obvious ARCH effect,and the theoretical price volatility trends calculated by the four carbon option pricing models are basically consistent with the actual price volatility trends,and the root mean square error,mean absolute error,mean square error and mean absolute percentage error are all relatively However,the GARCH-B-S carbon option pricing model with the introduction of skewness and kurtosis has the best fit and the smallest error between the theoretical price and the actual price,which is significantly better than the other models and more suitable for the pricing of carbon options.Based on the research results of this paper,the following policy recommendations are proposed to promote the development of China ’s carbon market:the introduction of carbon market financial derivatives needs to be based on a mature spot market,and it is necessary to learn from foreign experience to gradually improve the carbon market trading system;introduce carbon financial derivatives suitable for China ’s carbon market;to formulate perfect carbon market risk prevention and control measures;study a more accurate carbon option pricing model.This paper uses the improved B-S model to study the pricing of carbon options,which not only helps to enrich the carbon option pricing theory,but also helps the introduction of financial derivatives such as carbon options in China,the construction of a perfect carbon market,and the realization of the ’double carbon’ goal.