An Option Pricing Model Based on Hydrogen Energy

Energy structure adjustment, European green agreements, and carbon neutral and peak carbon policies have been launched by governments around the world to reduce carbon emissions, increase the proportion of clean and renewable energy (e.g.,hydrogen), and thereby mitigate or stop climate warming and the associated environmental problems. In this study, we designed an options contract for hydrogen energy, with the goal of using financial derivatives to promote the development of hydrogen energy, increase use of this energy, and promote relevant policies. Specifically, we used the price discovery function of options to solve the problem of opacity of hydrogen energy prices. First, we designed a hydrogen options contract based on the up-and-out call option (an option that ceases to exist if the underlying price rises above a specified value, which is called the barrier) contract, then we constructed a generalized discrete grey model to predict the price. We then developed a Monte Carlo hydrogen energy option pricing model, and concluded by selecting a hydrogen price. To demonstrate empirical analysis using the model, we used data from 17 August 2020 to 11 February 2021 for California, USA. We found that the contract design was effective, with high prediction accuracy for the hydrogen energy price, and that the simulated pricing of hydrogen energy options was reasonable. The hydrogen energy option will not only promote the development of hydrogen energy, but will also provide a new idea for subsequent exploration of new means to promote the development of hydrogen energy