Research On Option Models Of Low-carbon R&D Investment Under The Background Of Climate Warming

Global warming is mainly attributed to climate forcing from increase in CO₂ concentration in the atmosphere.The social costs of global warming damages from rising sea levels,extreme weather,crop failures and species extinction and so on are enormous.It is eager to seek effective solutions to reduce CO₂ concentration for government,researchers and policymakers of the corporate sector.How to manage CO₂ emission control policy is an extremely complex problem because of uncertainties in CO₂ emission process,CO₂ uptake,and CO₂ emission allowance price process,and irreversibility in investment decisions for low-carbon R&D project.Consequently,it is an important issue for the govement or corporate policymaker that the timing and conditions is to adopt certain CO₂ reduction during R&D investment project decisions.Real options analysis approach incorporates uncertainties and flexibility in management.It allows the decisionmakers to learn and then take action when more information is available in future to resolve uncertainties.The purpose of this dissertation aims at exploring decision making problem for low-carbon R&D investment project,integrating into basic theoretical after the related literature review about real option approach applied in R&D investment project,and then refine the establishment of a research topic.It is mainly from four aspects to explain the low carbon R&D investment project decision-making problems:First of all,the accurate pricing of carbon financial derivatives is the core of the international carbon emissions trading,which affects the stability and development of carbon finance market.Participants of such market scheme are always exposed to risks.How to quantify the risk has become key issue to study.In Chapter 3 the causes of price fluctuations in the European carbon emission allowance is analysed,and the main factors of price fluctuation is investigated.Accurate pricing is key to capturing the dynamic of carbon financial derivatives effectively in the carbon financial market.Because market information shocks lead to abnormal price changes,the pricing model of European futures on option is developed through the theory of classic financial option.Coupled with the approximation of the integral term by fast Fourier transform?FFT?,the pricing model is numerically solved by using the fitted finite volume method.The stability and convergence of the numerical scheme are given to analyse theoretically.The provided rates of convergence demonstrate the robustness of the numerical method.Numerical results are compared with the direct closed form solution and Monte Carlo simulation method.The results show that numerical method is the effective and feasible in practical application.Secondly,based on the dynamic evolution process of carbon emission allowance spot price in Chapter 3,the real option model pays attention to the effects of unexpected events on making low carbon R&D investment decision with jump processes of different distribution functions.According to the mathematical model,the impacts of unexpected events on project investments are discussed.It focuses on analysis of the impact of the parameters on the investment value of the enterprise and the timing and conditions for the implementation of the policy.Because of the complexity of climate change,low carbon R&D investment decision is filled with more uncertainty to realize CO₂ reduction actions.The moving of unexpected events is key factor in low carbon investment decision making.To evaluate the low carbon R&D investment value,one needs appropriate models for the evolution of the underlying asset,carbon emission allowance spot price.The numerical results discuss systematically the impact factor of carbon emission reduction.Next,low carbon R&D investment decision of the enterprise is modeled,considering the uncertainty of the asset and investment cost.The cost factor is assumed to be fixed in the fourth chapter,while it is very difficult to determine in the actual investment.Using real option approach,a perpectual or infinite time model and a finite time horizon model are developed to investigation CO₂ emission cutback R&D investment decision and CO₂ concentration abatement R&D investment project due to global warming respectively.The investment option model depends on option theory with uncertain cost and the effect is illustrated in the case of various CO₂ emission reduction cost.If the R&D investment projects can be in any time in the fixed term,in fact,the option pricing is equivalent to the American option of financial option.The fitted finite volume method is employed to solve numerical solution of pricing model and makes investment decision quantification.Finally,applying the option pricing theory,dynamic programming and numerical simulation method,the option model of investment decision making is governed under uncertainty according to the investment opportunity and strategy selection.Considering the randomness of the unexpected events in the market and the heterogeneity of enterprises,it is assumed that the random market demand is in accordance with the geometric Brown motion mixed poisson process,considering the case of the operating cost and the random cost.The boundary conditions of low carbon R&D investment decision-making option model depend on the payoff at terminal time,value-matching and smooth-pasting conditions to detremine optimized investment opportunities and strategies.However,under CO₂ concentration abatement policy,we overcome the difficulty from boundary condition by considering one dimension asset option model at maximum and minimum CO₂ concentration point when choose temperature as evaluation benchmark.The real option approach is employed to investigate R&D investment decision under CO₂ emission cutback and CO₂ concentration abatement project due to global warming respectively.The sensitivity of the parameters,such as the discount rate,decay parameter,the volatility,jump size,etc.,is analyzed by the option model in different ways of reducing emission.Using jump events,the magnitude and intensity of the jump reflects the degree of the unexpected events.Under the uncertainty,the value of real option comes from the adjustment of the strategic decision of the enterprises.By quantifying the value of investment decisions,the uncertainty will become the advantages of enterprises.Therefore,with the development of low carbon technology,the effect of carbon emission reduction will become more and more obvious.