<p>Abstract</p><p>Title: Options Based on CO2 Emissions: A Comparison with Traditional Options</p><p>Seminar date: 2009-06-17</p><p>Course: Bachelor thesis in business administration, 15 ECTS</p><p>Authors: Gustaf Kristiansson, Martin Nilsson</p><p>Instructor: Bengt Kjellgren</p><p>Key words: Black & Scholes, Certified Emission Reductions, emission markets, European Union Allowances, options, pricing</p><p>Purpose: This study intends to compare traditional options with the CO2 based instruments EUAs and CERs options in the fields of pricing, cap and trade, political influence, economical effects and market function.</p><p>Methodology: A combined research methodology is used in this study, which includes both a quantitative and a qualitative approach. A deductive research approach is brought out over the whole study.</p><p>Theoretical perspectives: The theoretical framework is based upon previous empirical research concerning the fields in this study. The Black & Scholes formula for option pricing has a central position.</p><p>Empirical foundation: Market data has been used to analyse the field of pricing. Interviews have been conducted with actors on the European emission trading market for a further understanding of cap and trade, political influence, economical effects and market function.</p><p>Conclusions: We have in this research identified that the CO2 based market differs from the financial market when it comes to political decisions and price fluctuation. We have also identified that the CO2 based market is not mature enough for a complete internationalisation.</p> / En formell presentation utfördes ej pga utlandsstudier.

Abstract Title: Options Based on CO2 Emissions: A Comparison with Traditional Options Seminar date: 2009-06-17 Course: Bachelor thesis in business administration, 15 ECTS Authors: Gustaf Kristiansson, Martin Nilsson Instructor: Bengt Kjellgren Key words: Black &amp; Scholes, Certified Emission Reductions, emission markets, European Union Allowances, options, pricing Purpose: This study intends to compare traditional options with the CO2 based instruments EUAs and CERs options in the fields of pricing, cap and trade, political influence, economical effects and market function. Methodology: A combined research methodology is used in this study, which includes both a quantitative and a qualitative approach. A deductive research approach is brought out over the whole study. Theoretical perspectives: The theoretical framework is based upon previous empirical research concerning the fields in this study. The Black &amp; Scholes formula for option pricing has a central position. Empirical foundation: Market data has been used to analyse the field of pricing. Interviews have been conducted with actors on the European emission trading market for a further understanding of cap and trade, political influence, economical effects and market function. Conclusions: We have in this research identified that the CO2 based market differs from the financial market when it comes to political decisions and price fluctuation. We have also identified that the CO2 based market is not mature enough for a complete internationalisation. / En formell presentation utfördes ej pga utlandsstudier.

Electricity generating units (EGUs) are major emitters of both nitrogen oxides (NOx) and CO₂, and cap-and-trade programs are either currently used or proposed as management strategies for both pollutants. Emission cap and trade programs for these two pollutants have generally been considered independently, but since each EGU will have a characteristic NOx to CO₂ emission ratio, these programs are inherently connected. This thesis examines the extent to which CO₂ emission pricing and NOx emission markets are likely to influence each other, using Texas as a case study. The relationship is first demonstrated with a simple scenario of four power plants, followed by a second scenario accounting for the largest 34 plants in Texas. The analysis demonstrates that future CO₂ pricing will cause NOx emissions markets to be inefficient at reducing emissions through changes in the dispatching order. There will also exist a greater potential for NOx price spikes. Two plausible alternatives to this problem are suggested: a temporally- and spatially-variable NOx program, or increased emphasis on retrofitting the existing fleet of power plants for NOx reduction. / text