A comparison of reduced-form permit price models and their empirical performances

Abstract

Equilibrium models have been proposed in literature with the aim of describing the evolution of the price of emission permits. This paper derives first a reducedform model from an equilibrium model and thereby explains how existing reducedform models are related to equilibrium models. Second, by means of calibration to historical data, it is shown how these reduced-form models perform in the current price-evolution framework also with respect to standard continuous time stochastic models