Risk Assessment for a Structured Product Specific to the CO2 Emission Permits Market

The aim of this work is to use a new modelling technique for CO2 emission prices, in order to estimate the risk associated with a related, structured product. After a short discussion of the speci ficities of this market, we investigate several modelling methods for CO2 emission prices. We use these results for risk modeling of the swap between two CO2 related instruments: the European Union Allowances and the Certifi ed Emission Reductions. We estimate the counterparty risk for this kind of transaction and evaluate the impact of diff erent models on the risk measure and the allocated capital