Convenience yield is call options; spot holders attain excess investment revenues through holding spot assets instituted futures assets. Based on the hypothesis of convenience yields, our empirical results show that monthly convenience yield of emission allowance has significant options feature; convenience yield has strong correlation with price spread between spot and futures and their price volatility. The market information set is helpful to adjust portfolio policy and improve portfolio investment revenues of emission allowances. 1. Introduction Greenhouse gas (GHG) emission is an ever increasingly hot topic in the 21st century for alarming phenomena of global warming and extreme climate deterioration. Emissions trading scheme is cost-effective market scheme in order to prevent climax changes and control greenhouses gas (GHG) emissions reduction [1–3]. Spot, forwards, futures, options, and swaps are of important financial tools for market participants to increase assets portfolio returns and strengthen risk reduction management. According to research report on state and trend of carbon market in 2011 by the World Bank, the total value of the global carbon markets grew 6% to US $144 billion until 2010; its trade volume attained 8.7 billion tons CO2 [1]. Spot and futures prices of emission allowance crucially depend on expected market scarcity induced by total quantity of demand and supply in the emission allowance market, and many complex factors such as GHG emission reduction planning and regulation policy, low-technology promotion and application, energy price volatility, energy efficiency, and extreme temperature change have significant impacts on the scarcity in emission allowance market [2, 3]. Several empirical results show that spot and futures prices exhibit obviously time-varying trends. Seifert et al. [4], and Benz and Trück [3] present that spot prices of emissions allowances show a time-varying trend; Seifert et al. find that spot price exhibits a time- and price-dependent volatility structure [4]; Benz and Trück examine that spot price volatility exhibits a left-skewness and heave-kurtosis trend in the Pilot and Kyoto phase [3]. Daskalakis et al. find that banking-borrowing regulation prohibition has a significant impact on spot and futures prices; market participants can achieve market arbitrage incomes through optimizing assets portfolio policy between futures and options markets in the Pilot and Kyoto phase [5]. Chang et al. propose a new N-factor affining term structure model of futures price of emisssion allowances and their
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