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Publication details

Decision of a Steel Company Trading with Emissions

Conference Paper (international conference)

Zapletal F., Šmíd Martin


serial: Proceedings of the 34th International Conference Mathematical Methods in Economics MME 2016, p. 916-921 , Eds: Kocourek A.

action: MME 2016. International Conference Mathematical Methods in Economics /34./, (Liberec, CZ, 06.09.2016-09.09.2016)

project(s): GA16-01298S, GA ČR

keywords: CVaR, emission trading, optimization, allowances, EU ETS

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abstract (eng):

We formulate a Mean-CVaR decision problem of a production company obliged to cover its CO2 emissions by allowances. Certain amount of the allowances is given to the company for free, the missing/redundant ones have to be bought/sold on a market. To manage their risk, the company can use derivatives on emissions allowances (in particular futures and options), in addition to spot values of allowances. We solve the decision problem for the case of an real-life Czech steel company for different levels of risk aversion and different scenarios of the demand. We show that the necessity of emissions trading generally, and the risk caused by the trading in particular, can influence the production significantly even when the risk is decreased by means of derivatives. The results of the study show that even for low levels of the risk aversion, futures on allowances are optimal to use in order to reduce the risk caused by the emissions trading.

RIV: BB

2012-12-21 16:10