A Comparison of Reduced-Form Permit Price Models and Their Empirical Performances
Georg Gruell, Luca Taschini
University of Duisburg-Essen; London School of Economics

Equilibrium models have been proposed in literature with the aim of describing the evolution of the price of emission permits. First, estimation methods for the calibration of three competing equilibrium models are derived. Second, it is demonstrated how their reduced-form versions are inter-related. Third, by means of calibration to historical data, it is shown how these reduced-form models perform in the current price-evolution framework also with respect to standard continuous time stochastic models.

Keywords: CO2 emission allowances; Equilibrium model; Model calibration

Biography: G. Gruell's research focuses on environmental economics. Especially, he analyses the price dynamics of emissions trading schemes.