The Dependence Relationship Between Carbon Emission Allowance Price And "Black" Commodities Price

Carbon emission trading system has been developed greatly since the first carbon dioxide emission exchange was founded 6 years ago in China.It is no doubt that the carbon market becomes more and more important in the economics and finance system of this country,as well as for the enterprises and financial institutions participating in the market.Conducting studies on the dependence relationship between carbon market and other financial markets will be helpful to make portfolio decision and financial risk management for investors.Based on financial literatures,this paper employs copula function method to research the dependence structure between carbon emission spot and black commodity futures.The first step is conducting a structural breaking test to carbon price,and according to the result,setting 15 sample pairs of returns observations.The second step is conducting probability integral transformation for initial observed samples and fitting 6 basic copula functions for those dependent sample pairs by pseudo-maximum-likelihood estimation method,from which the optimal one will be recognized.And the third step is calculating dependence measures as the quantitative indicators to dependence correlation.The last step is simulation based on copula functions with estimated parameters and constructing simulated portfolios corresponding to historical portfolios.Test results confirm the consistency to historical scenarios and the efficiency of copula portfolios.Additionally,APARCH-DCC model is used for calculating dynamic volatility,dynamic correlation coefficients and diversification profit measures.The paper draws some conclusions.Firstly,there are weak dependence relationship between carbon emission spot and black commodities,and obvious tail dependence between certain assets.Secondly,it is efficient to fit the dependence structure between carbon and black commodities by copula function method,which is very close to their historical joint distributions.Lastly,investment portfolios composed of carbon assets and black commodities have much profit from diversification and copula function can accurately estimate their risk.Our research support investors in carbon markets implementing risk diversification by constructing investment portfolios containing carbon assets and black commodities,and the copula function can also be used for evaluate their joint distributions and risk measures.