Innovating and Pricing Carbon-Offset Options of Asian Styles on the Basis of Jump Diffusions and Fractal Brownian Motions

Due to CO2 emissions, humans are encountering grave environmental crises (e.g., rising sea levels and the grim future of submerged cities). Governments have begun offset emissions by constructing emission-trading schemes (carbon-offset markets). Investors naturally crave carbon-offset options effectively control risk. However, research practice for these relatively limited. This paper contributes literature in this area. Specifically, according carbon-emission allowances’ empirical distributions, we implement fractal Brownian motions jump diffusions instead traditional geometric motions. We contribute extending theoretical model based on option-pricing methods. innovate Asian styles. authenticate options’ stochastic differential equations analytically price form theorems. verify parameter sensitivity pricing formulas illustrations. also elucidate practical implications an scheme.