Convenience yields and options value on futures spread for carbon emission

Abstract

Convenience yields convey the difference of expected yields on EUA futures contracts with different delivery dates. We present options pricing formula of futures spread with zero strike price and constant convenience yields, and compare options value of futures spread with different maturities. Empirical results show convenience yields of EUA daily futures are a strong similarity of time-varying trend. Holding long-maturity futures are considered as call options of futures spread. The hedgers can adjust flexible trading policies of assets portfolio on EUA futures with different maturities by the behavioral characteristics of convenience yields. Empirical results show holding long-maturity EUA futures with higher negative convenience yields can be created obvious options value of futures spread.