Research on the Fluctuation Characteristics of Carbon Futures Price Based on WTMM

Abstract

Abstract: Exploring the volatility characteristics of carbon futures prices under structural breaks is of great significance for portfolio optimization and risk management. Based on the wavelet transform modulus maximum algorithm (WTMM), this paper studies the characteristics of EUA futures price fluctuation in the second and third phases of the EU ETS system, with possible structural breaks of carbon price fluctuation taken into account. Starting from the Lipschitz exponent, this paper applies the WTMM model to identify the structural breaks of the EUA price volatility and realizes the division of breakpoints into step-and impulse-type breaks. The empirical results show that there are step- and impulse-type structural breaks in the EUA volatility. Specifically, in the second and third phases, the EUA volatility has 8 and 7 step-type structural breakpoints, respectively. Financial crises, market reform, and economic situation changes are the important reasons for their occurrence, which all make the EUA futures volatility change significantly. In the third stage, the EUA volatility has one impulse-type structural break point, and policy change is an important reason for this structural break. Compared with the traditional structural break detection methods, the break detection results obtained by WTMM are more detailed and comprehensive.

Key words: carbon futures, structural breaks, wavelet transform modulus maximum, Lipschitz exponent

Li Jingyu, Zhao Mengfan, Liu Ranran, Li Yongwu, Xie Qiwei. Research on the Fluctuation Characteristics of Carbon Futures Price Based on WTMM[J]. Management Review, 2024, 36(12): 84-96.

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