Convenience yields and arbitrage revenues of emission allowances between spot and futures

Based on the data samples using EUA spot and futures in the ICE and BLUENEXT exchange platform in the European Union emissions trading scheme (EU ETS), this paper propose the market behavior of convenience yields and examine the options feature of convenience yields for emission allowances. When the convenience yields of emission allowances are positive, the convenience yields are positively related with the spread between spot expected value and futures price of emission allowances. When the convenience yields of emission allowances are negative, the absolute value of convenience yields are positively related with the spread between futures price and spot expected value of emissions allowances, and then the convenience yields of emission allowance have a significant options property. Our empirical evidence show that when the convenience yields are call or put options, market participants can flexibly adjust portfolio policies of emission allowances assets, based on the extension of options pricing model of assets exchange, and then achieve extra market arbitrage revenues through exchanging emission allowances assets between spot and futures. Key-Words: emission allowances; convenience yields; options property; assets exchange; arbitrage revenue