Singular forward-backward stochastic differential equations and emissions derivatives. (English) Zbl 1276.60070

The authors are interested in modelling \(CO_{2}\) emissions, and in particular the valuation \(CO_{2}\) emission allowances. For this they propose two forward-backward stochastic differential equations with singular terminal condition as models. They also provide a first order Taylor expansion and show how to numerically calibrate some of their models to be used in \(CO_{2}\) option pricing.


60H30 Applications of stochastic analysis (to PDEs, etc.)
91G80 Financial applications of other theories
91G20 Derivative securities (option pricing, hedging, etc.)
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