CERs Price Linked Bond Design And Pricing

With the impacts of global warming deepens day by day, how to effectively control the carbon emissions are increasingly important. Since China’s reform and opening up, the rapid development of industry brings a large number of greenhouse gas emissions, in order to avoid a repeat of the developed country’s "pollute first, administer after" road, many policies have been promulgated, carbon finance correspondingly. In the international carbon finance stage, many domestic enterprises are involved in the clean development mechanism (CDM) which established in "Kyoto Protocol", however these certified emission reductions sell in CDM mechanism have a very large price volatility. On the other hand, in view of the project’s high risk, these enterprises in the process have been facing the problem of financing difficulties in the operation of the project. Therefore, if we could design a product which can simultaneously solve the enterprises’ financing difficulties and product price fluctuation risk, for those enterprises which take part in the CDM has an important significance.Now, many domestic experts and scholars have started to focus on the research of clean development mechanism, however most of the studies focus on the mechanism of CDM, factors affecting CERs price, CDM laws and regulations establishment etc. while the research on the CERs price related financial derivatives is slightly less. Therefore, this paper start from the basic concept of CDM mechanism, and further analysis of the CDM mechanism in the presence of the seller’s risk, based on commodity related bonds research results, design a CERs price related bond. The main work and conclusions are as follows:This paper selected d the EU quotas and CERs closing dates provided by European Environmental Exchange (bluenext) from2009to2011, established a VAR model, research shows that, EUA’s price have play an important guiding role in CERs price, while CERs price changes have little impact on the EUA price.so,when we do analysis of CERs price fluctuation, we can not ignore the EUA price fluctuations.Later, take2006October to2011October IBR007daily closing data as a sample, using the generalized moment estimation method (GMM), estimate the parameters of CKLS models.The results of empirical research shows that, CKLS model can accurately describe China term structure of interest rate condition.Combining CKLS model, we begin the CERs price related bond’s design and pricing, compared with the traditional fixed rate and floating rate bonds, the bonds coupon hooks with CERs price, showing some characteristics of options. Then set up CERs price cap, lower and double limit on this bond. Researches show that, this bond, can effectively avoid the risk of price fluctuation of CERs, while the traditional fixed rate bonds and floating rate bonds cannot avoid CERs price fluctuation risk. the CERs price upper limit, lower limit and double limit setting can give a certain degree of protection to those bond issuers and investors.In addition, this paper also do some researches on the establishment and development of Carbon finance market, put forward some concrete policy suggestions.