Tail Dependence Structure between Carbon Emission Allowances Returns Based on Copulas

Abstract:

This paper has focus on analyzing tail dependence structure between EUA spots returns and futures returns based on copula approach, which EUA spots negotiated on BlueNext and futures negotiated on European Climate Exchange within the European Union Emission Trading Scheme (EU ETS) during the Phase II. According to the generalized Pareto distribution (GPD) and different Copula functions, the research shows that Gumbel Copula based on the GPD marginal distribution can indicate the tail dependence structure of EUA spots returns and futures returns accurately, i.e. the dependence between upper-tails of EUA spot and Dec10 is stronger than that of lower-tails of them. In other words, EUA spots and futures are more likely to soar together than slump together during the Phase II.

• Periodical: Applied Mechanics and Materials (Volumes 397-400)
• Pages: 726-730
• DOI: https://doi.org/10.4028/www.scientific.net/AMM.397-400.726
• Online since: September 2013
• Authors: De Dong Zhuang*
• Keywords: Copulas, Eu ETS, Generalized Pareto Distribution, Tail Dependence

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