Prediction of Emission Allowances Spot Prices Volatility with the Use of GARCH Models
For several years, the system of emission allowances trading has been dealing with a crisis mainly due to the falling prices of emission allowances. That said, the partial aim of this paper is to create an overview of EUA trading options and acquaint readers with the development of the emission a...
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doaj-9042440f6a2c4bab9dc453658bb279322020-11-24T21:54:44ZengUniversity of Finance and AdministrationACTA VŠFS1802-792X1802-79462016-06-011016679Prediction of Emission Allowances Spot Prices Volatility with the Use of GARCH ModelsDaniela Spiesová0Czech University of Life Sciences PragueFor several years, the system of emission allowances trading has been dealing with a crisis mainly due to the falling prices of emission allowances. That said, the partial aim of this paper is to create an overview of EUA trading options and acquaint readers with the development of the emission allowances price. Another partial aim is to predict the volatility of prices of emission allowances with the use of BAU scenario, i.e. without any intervention. ARIMA models are used to model the conditional mean value and linear ARCH or GARCH models are used to model conditional variance. The uniqueness of this paper lies in the fact that there are many expert studies dealing with the prediction of the price of allowance but there are only a limited number of scientific studies concerning the prediction of volatility which is the crucial element for trading with emission allowances on the exchange. Based on these two results the main aim of this article is to show possible malfunction of EU ETS in future based on the price development of EUA in time and on volatility prediction. The results of this study confirm that to predict the conditional variance and then volatility, it is adequate to use the cluster model AR(1,8,12)-GARCH(1, 1) without constant, where in the long-term, the square root of the conditional variance inclines towards stable value. Based on the analysis of EUA prices it is obvious that the system is not efficient and does not fulfill its purpose. These two partial conclusions suggest that in case of non-intervention of the European Commission the whole mechanism may fail.https://is.vsfs.cz/auth/repo/5262/Spiesova_ACTA_2016_1.pdfemission allowancevolatilityARIMAGARCHpredictionspot price |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Daniela Spiesová |
spellingShingle |
Daniela Spiesová Prediction of Emission Allowances Spot Prices Volatility with the Use of GARCH Models ACTA VŠFS emission allowance volatility ARIMA GARCH prediction spot price |
author_facet |
Daniela Spiesová |
author_sort |
Daniela Spiesová |
title |
Prediction of Emission Allowances Spot Prices Volatility with the Use of GARCH Models |
title_short |
Prediction of Emission Allowances Spot Prices Volatility with the Use of GARCH Models |
title_full |
Prediction of Emission Allowances Spot Prices Volatility with the Use of GARCH Models |
title_fullStr |
Prediction of Emission Allowances Spot Prices Volatility with the Use of GARCH Models |
title_full_unstemmed |
Prediction of Emission Allowances Spot Prices Volatility with the Use of GARCH Models |
title_sort |
prediction of emission allowances spot prices volatility with the use of garch models |
publisher |
University of Finance and Administration |
series |
ACTA VŠFS |
issn |
1802-792X 1802-7946 |
publishDate |
2016-06-01 |
description |
For several years, the system of emission allowances trading has been dealing with a
crisis mainly due to the falling prices of emission allowances. That said, the partial aim
of this paper is to create an overview of EUA trading options and acquaint readers with
the development of the emission allowances price. Another partial aim is to predict the
volatility of prices of emission allowances with the use of BAU scenario, i.e. without any
intervention. ARIMA models are used to model the conditional mean value and linear
ARCH or GARCH models are used to model conditional variance. The uniqueness of this
paper lies in the fact that there are many expert studies dealing with the prediction of the
price of allowance but there are only a limited number of scientific studies concerning the
prediction of volatility which is the crucial element for trading with emission allowances
on the exchange. Based on these two results the main aim of this article is to show possible
malfunction of EU ETS in future based on the price development of EUA in time and
on volatility prediction. The results of this study confirm that to predict the conditional
variance and then volatility, it is adequate to use the cluster model AR(1,8,12)-GARCH(1,
1) without constant, where in the long-term, the square root of the conditional variance
inclines towards stable value. Based on the analysis of EUA prices it is obvious that the
system is not efficient and does not fulfill its purpose. These two partial conclusions suggest
that in case of non-intervention of the European Commission the whole mechanism
may fail. |
topic |
emission allowance volatility ARIMA GARCH prediction spot price |
url |
https://is.vsfs.cz/auth/repo/5262/Spiesova_ACTA_2016_1.pdf |
work_keys_str_mv |
AT danielaspiesova predictionofemissionallowancesspotpricesvolatilitywiththeuseofgarchmodels |
_version_ |
1725866053790072832 |