Project CEMAPRE internal
| Title | PRISEMA - Pricing of Financial Instruments in Emission Markets |
| Participants | Carolina G Alves, Maria do Rosário Grossinho, João Guerra (Principal Investigator), João Janela |
| Summary | The goal of this project is to develop some models for the pricing of financial instruments in the emissions markets and also for the pricing of renewable energy certificates (RECs). We will focus on structural models based on the underlying economic factors that determine the price of carbon credits or REC's. Our goal is to derive forward-backward stochastic differential equations (FBSDEs) for the allowance pricing process and numerically solve the associated partial differential equations (PDEs). From a theoretical point of view, we will study the well-posedness of the FBSDEs and the properties of the solutions of the PDEs in some asymptotic cases. We will also develop efficient numerical methods for solving the pricing PDEs, testing methods such as semi-Lagrangian schemes, Lagrangian-Galerkin methods, and alternating directions (ADI) finite difference schemes. The project will continue to reinforce the collaboration with the research team at Wuppertal University, Germany, coordinated by Prof. Matthias Ehrhrardt, progressing the previous work with special emphasis on qualification of young academics in an international environment. Carolina Gonçalves Alves is a student of the Master Program in Mathematical Finance at ISEG and will wotk in her dissertation on topics of this project. Complementary funding from the Germany-Portugal Bilateral project PRISEMA - Pricing of Financial Instruments in Emission Markets, can be obtained, if this project (which was submitted to FCT in September of 2023) is approved for funding by FCT/DAAD. |