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Computational Methods in Applied Mathematics

Editor-in-Chief: Carstensen, Carsten

Managing Editor: Matus, Piotr


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1609-9389
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Volume 16, Issue 2

Issues

The Valuation of Carbon Bonds Linked with Carbon Price

Shuhua Zhang
  • Research Center for Mathematics and Economics, Tianjin University of Finance and Economics, Tianjin 300222; and Institute of Policy and Management, Chinese Academy of Sciences, Beijing 100190, P. R. China
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/ Zhuo Yang
  • Corresponding author
  • Research Center for Mathematics and Economics, Tianjin University of Finance and Economics, Tianjin 300222; and College of Science, Tianjin University of Commerce, Tianjin 300134, P. R. China
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Published Online: 2016-01-14 | DOI: https://doi.org/10.1515/cmam-2016-0001

Abstract

The carbon bonds issued by countries or enterprises can solve the problem of funds in low carbon economy growth. Now most of carbon bonds pay fixed interest rates, and a few pay floating rates. The diversity of carbon bonds can attract more investors to participate green energy projects. The London Accord project group proposed the index linked carbon bonds in the World Band Government Borrowers' Forum in May 2009, and pointed out that the interest paid regularly may be linked to carbon price, governments' carbon emission targets, in-country fossil fuel prices or tariff feed-in prices. In this paper, the interests are considered to be linked with carbon prices in the condition of stochastic risk-free interest rate, and a partial differential equation is established for carbon bond interests. Also, a fitted finite volume method is employed to solve the resulting partial differential equation numerically, and on the basis of the valuation for zero-coupon bonds, the price of carbon bonds is obtained. Finally, some data are utilized for the calibration of the parameters in the established pricing models, and some numerical examples are presented and the effects of parameters on solutions are also demonstrated, which can provide references for the issuers of carbon bonds.

Keywords: Carbon Bonds; Carbon Price; Finite Volume Method; Maximum Likelihood

MSC: 35Q62; 65K15; 91G80

About the article

Received: 2015-02-26

Revised: 2015-05-18

Accepted: 2015-08-20

Published Online: 2016-01-14

Published in Print: 2016-04-01


Funding Source: National Basic Research Program

Award identifier / Grant number: 2012CB955804

Funding Source: National Natural Science Foundation of China

Award identifier / Grant number: 11171251, Major Research Plan 91430108

Funding Source: Tianjin University of Finance and Economics

Award identifier / Grant number: Major Program ZD1302

Funding Source: Youth Science Research Foundation of Tianjin University of Commerce

Award identifier / Grant number: 14QNJJ10


Citation Information: Computational Methods in Applied Mathematics, Volume 16, Issue 2, Pages 345–359, ISSN (Online) 1609-9389, ISSN (Print) 1609-4840, DOI: https://doi.org/10.1515/cmam-2016-0001.

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