Texas’ Mass Emission Cap and Trade program is a mandatory Nitrous Oxide (NOx) abatement program for medium and large stationary sources located in the Houston-Galveston ozone non-attainment area. Effected companies are required to upgrade equipment to meet the current best achievable NOx control technology (BACT) standards or to purchase emission credits in sufficient quantity to cover the difference in emissions between existing equipment and equipment meeting the BACT standard. With over 260 participating companies, the market for emission credits is ever changing, making it difficult to evaluate whether the lowest cost decision is to upgrade equipment or to purchase NOx emission credits. Because equipment upgrades are capital investments, a well informed, rational decision can have a significant impact on the corporate balance sheet. The objective of this research is to aid the decision maker by predicting credit prices based on a Geometric Brownian Motion model based on historical NOx emission credit transactions. The predicted credit price is useful in evaluating the likelihood of the equipment upgrade option being a favorable or unfavorable decision. For the examined cases, modeled results indicate that equipment upgrade is the more cost effective option. / text

Insurance contracts will be reported at fair values on insurers’ balance sheets from 2010. In this thesis, we will review the conceptual and theoretical backbone of the insurance fair valuation project while providing a summary of the key features of the fair valuation project. Then, we will conduct a case study aimed at finding, under the fair valuation regime, the best asset allocation strategy for a particular business unit that carries a hypothetical annuity portfolio using a single modelling framework for valuation, risk calculation and business appraisal.