Multi-stage stochastic optimization of carbon risk management

Kód výsledku v IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985556%3A_____%2F22%3A00557302" target="_blank" >RIV/67985556:_____/22:00557302 - isvavai.cz</a>

Nalezeny alternativní kódy

RIV/61989100:27510/22:10251388

Výsledek na webu

<a href="https://www.sciencedirect.com/science/article/pii/S0957417422004389?via%3Dihub" target="_blank" >https://www.sciencedirect.com/science/article/pii/S0957417422004389?via%3Dihub</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1016/j.eswa.2022.117021" target="_blank" >10.1016/j.eswa.2022.117021</a>

Jazyk výsledku

angličtina

Název v původním jazyce

Multi-stage stochastic optimization of carbon risk management

Popis výsledku v původním jazyce

Emissions trading within the Emissions Trading Scheme of the European Union (EU ETS) strongly influences European industrial companies. The companies must choose their strategy of reduction the costs of emissions allowances as possible. The changing system’s conditions and volatile prices of allowances make this decision challenging. The main aim of this study is to compare different ways of risk management: banking (i.e., buying the allowances in forward) and using derivatives: futures and options. Despite several studies devoted to the relationship between the EU ETS and companies have already been published, there is still a gap in this field. Namely, the published studies have been substantially simplified so far by ignoring the risk of driving parameters. We construct a realistic large-scale stochastic optimization model, which avoids the mentioned simplifications. We use the Markov Stochastic Dual Dynamic Programming algorithm (MSDDP) to find the optimal solution. We apply the model to the data of a real-life industrial company. We find that banking is the most costly way of risk reduction, while using derivatives is efficient in risk reduction. Surprisingly, out of the derivatives, it is always optimal to use futures and not to use options. These results are confirmed by a thorough sensitivity analysis. The preference of the futures over options is mainly due to the less price of futures in comparison to options reducing risk equivalently.

Název v anglickém jazyce

Multi-stage stochastic optimization of carbon risk management

Popis výsledku anglicky

Emissions trading within the Emissions Trading Scheme of the European Union (EU ETS) strongly influences European industrial companies. The companies must choose their strategy of reduction the costs of emissions allowances as possible. The changing system’s conditions and volatile prices of allowances make this decision challenging. The main aim of this study is to compare different ways of risk management: banking (i.e., buying the allowances in forward) and using derivatives: futures and options. Despite several studies devoted to the relationship between the EU ETS and companies have already been published, there is still a gap in this field. Namely, the published studies have been substantially simplified so far by ignoring the risk of driving parameters. We construct a realistic large-scale stochastic optimization model, which avoids the mentioned simplifications. We use the Markov Stochastic Dual Dynamic Programming algorithm (MSDDP) to find the optimal solution. We apply the model to the data of a real-life industrial company. We find that banking is the most costly way of risk reduction, while using derivatives is efficient in risk reduction. Surprisingly, out of the derivatives, it is always optimal to use futures and not to use options. These results are confirmed by a thorough sensitivity analysis. The preference of the futures over options is mainly due to the less price of futures in comparison to options reducing risk equivalently.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

50204 - Business and management

Projekt

<a href="/cs/project/GA21-07494S" target="_blank" >GA21-07494S: Účinnost politiky snižování emisí uhlíku</a><br>

Návaznosti

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Rok uplatnění

2022

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

Expert Systems With Applications

ISSN

0957-4174

e-ISSN

1873-6793

Svazek periodika

201

Číslo periodika v rámci svazku

1

Stát vydavatele periodika

NL - Nizozemsko

Počet stran výsledku

12

Strana od-do

117021

Kód UT WoS článku

000830169300004

EID výsledku v databázi Scopus

2-s2.0-85128573521