Course 10 of 20 · Emissions and Carbon Desk Academy

Allowance Futures, Options & Hedging

Stage C, Price formation, hedging and procurement economics. Level 5 of 10.

Listed allowance derivatives and the construction, margining and effectiveness testing of a compliance hedge.

127 chapters · 11 modules · every chapter one 8 to 10 minute explainer · builds on: Course 01, Course 05, Course 09

Enrol or enquire See the 127 chapters
How a chapter is delivered

One chapter is one idea taken to the point of use

Each chapter covers one idea to the point where you can use it, and comes two ways: a narrated explainer, and a deep dive audio discussion of around thirty minutes that works the same material at depth.

Self-paced throughout, and the same chapters can be taught as a cohort. Chapters run in order: each one assumes only what the chapters before it taught, and capability belonging to a later course is named and deferred rather than half-covered.

Curriculum

11 modules · 127 chapters

Open any module for its full chapter list, in teaching order.

M0 The Compliance Obligation as a Hedging Object Ch 1-11
  1. What Listed Cover Can and Cannot Do About a Surrender Obligation
  2. The Obligation Is a Tonne Count Owed at a Date
  3. Where the Carbon Exposure Attaches During the Operating Year
  4. Why an Operator Short of Allowances Suffers From a Rising Price
  5. The Surplus Holder Who Is Long Allowances and Fears a Fall
  6. Free Allocation and the Residual Tonnes Left to Buy
  7. Separating Carbon Price Risk From Carbon Quantity Risk
  8. The Obligation Table: Compliance Year Against Tonnes Still Uncovered
  9. Taking the Procurement Plan as the Hedge Input
  10. What an Unpriced Tonne Costs Between Now and Surrender
  11. The Order in Which This Material Builds Carbon Cover
M1 The Listed Allowance Instrument Set Ch 12-23
  1. The Exchange-Traded Allowance Future
  2. Why the December Expiry Dominates the Allowance Curve
  3. The Allowance Daily Future as a Spot Substitute
  4. Allowance Futures That Deliver Into a Holding Account
  5. Cash-Settled Allowance Contracts and the Price They Reference
  6. The Bilateral Allowance Forward and the Credit It Carries
  7. The Allowance Swap Settled Against an Assessment
  8. Options Listed on an Allowance Future, in Outline
  9. The December Against December Spread Quoted as One Trade
  10. Choosing a Future or a Forward for One Compliance Year
  11. Where Allowance Liquidity Thins: Vintage, Scheme and Tenor
  12. Why a Credit Cannot Stand In for an Allowance Here
M2 Inside the Allowance Futures Contract Ch 24-33
  1. Reading an Allowance Futures Specification Cold
  2. One Lot as a Thousand Tonnes of Obligation
  3. The Tick, the Quote and What a Small Move Is Worth
  4. The Final Trading Day Set Ahead of the Surrender Deadline
  5. Delivery of Allowances on the Stated Day
  6. Failure to Deliver and the Buy-In That Follows
  7. How a Daily Settlement Price for Carbon Is Struck
  8. The Hedge Exemption From a Carbon Position Limit
  9. Give-Ups, Clearing Members and the Carbon Hedger's Account Map
  10. Block Trades and Exchange for Physical on Allowance Contracts
M3 Banking, Carry and the Allowance Curve Ch 34-44
  1. Why Banking Turns the Allowance Curve Into a Carry Curve
  2. Computing the Implied Carry Between Two December Contracts
  3. Funding Cost and Balance Sheet Inside the Carry Number
  4. When an Allowance Curve Can Invert Despite Banking
  5. The Repo-Style Carbon Trade: Selling Spot and Buying December
  6. Lending Surplus Allowances and What the Lender Gives Up
  7. Phase Boundaries and the Limit of Bankability
  8. Reading the Carbon Curve Before Choosing a Hedge Tenor
  9. A Worked Carry Decision, Part One: The Spread on Screen
  10. A Worked Carry Decision, Part Two: Hold Units or Buy Forward
  11. The Deliberately Simplified Curve This Module Used
M4 Sizing, Phasing and Placing the Hedge Ch 45-56
  1. The Hedge Ratio Measured Against Open Tonnage
  2. From Verified Tonnes to Lots of Allowance Future
  3. The Rounding Decision on a Small Installation
  4. Netting Units Already Held Before Sizing Any Cover
  5. Placing Lots Against a Range Rather Than a Number
  6. Which Contract Month Carries the Firm Core
  7. Clipping a Large Allowance Order Across Sessions
  8. Hedging One Scheme's Obligation With Another Scheme's Contract
  9. Timing the First Tranche Against the Curve, Not the News
  10. Choosing a Cover Ratio Below One Deliberately
  11. A Worked Allowance Sizing, Part One: The Obligation Sheet
  12. A Worked Allowance Sizing, Part Two: The Order and Its Tag
M5 Allowance Options as an Instrument Ch 57-68
  1. The Call That Caps What Compliance Tonnes Will Cost
  2. The Put That Protects a Banked Allowance Holding
  3. Reading an Allowance Option Specification and Its Exercise Style
  4. Why Carbon Option Expiries Sit Just Ahead of December
  5. Premium Split Into Intrinsic and Time Value
  6. Requesting a Carbon Option Quote and Reading the Answer
  7. What Implied Volatility on a Carbon Option Does Not Tell You
  8. The Carbon Skew Argument and Its Competing Explanations
  9. Delta and the Lots of Future an Option Stands In For
  10. Vega: What a Volatility Shift Does to Carbon Protection
  11. Theta as the Running Cost of Holding Carbon Protection
  12. Exercise, Assignment and the Futures Position You Inherit
M6 Valuing and Choosing Option Cover Ch 69-80
  1. Valuing a Carbon Call by Averaging Payoffs Across Scenarios
  2. Why Averaging First and Flooring After Understates an Option
  3. Building the Scenario Set a Carbon Valuation Runs On
  4. The Cap: Bounding the Cost of a Compliance Year
  5. The Collar: Buying a Call and Selling a Put
  6. What a Zero-Premium Carbon Collar Gives Away
  7. The Call Spread as Partial Protection at Lower Premium
  8. Selling a Carbon Put Against Cash Already Budgeted
  9. The Covered Call Written Against Units in the Account
  10. Option Cover Against Futures Cover for the Same Tonnage
  11. Getting a Carbon Premium Budget Approved
  12. When an Option Is the Wrong Answer to a Carbon Obligation
M7 Clearing, Margin and the Cash Cost of Cover Ch 81-92
  1. Initial Margin on an Allowance Futures Hedge
  2. Variation Margin and the Daily Mark on a Carbon Position
  3. Why Correct Carbon Cover Still Drains Cash Before Surrender
  4. A Falling Carbon Price Against a Long Futures Hedge
  5. A Rising Carbon Price and the Margin It Returns
  6. Allowances Posted as Collateral and the Haircut Applied
  7. Margin on a Written Carbon Option Against Premium Received
  8. Credit Support Terms on a Bilateral Allowance Forward
  9. Clearing a Carbon Forward Instead of Carrying the Counterparty
  10. Forecasting the Margin Profile of a Carbon Hedge Programme
  11. The Liquidity Headroom a Carbon Hedge Programme Needs
  12. When Funding Pressure Breaks an Otherwise Correct Hedge
M8 Maintaining Cover: Rolls, Resizing and Delivery Ch 93-103
  1. Why Compliance Cover Outlives the Contract Holding It
  2. Rolling From One December Allowance Future to the Next
  3. What the December Roll Costs on a Carry Curve
  4. Rolling Cover Into a Phase Boundary
  5. Resizing Cover When the Verified Figure Lands
  6. Resizing Cover When Free Allocation Is Restated
  7. Unwinding Cover After an Installation Stops Operating
  8. Unwinding Cover Placed Against a Mis-Stated Obligation
  9. Turning Futures Cover Into Units Before the Deadline
  10. Taking Delivery Against Buying Units Outright, Compared
  11. The Maintenance Record a Carbon Auditor Will Ask For
M9 Designation and Effectiveness Testing Ch 104-116
  1. A Hedged Carbon Book With a Volatile Reported Result
  2. The Absence of One Settled Standard for Emission Rights
  3. The Hedged Item as a Forecast Allowance Purchase
  4. Documenting the Relationship Before the Trade Is Placed
  5. The Economic Relationship Test on an Allowance Hedge
  6. The Hedge Ratio Carried Into the Designation
  7. Whether Counterparty Credit Dominates the Relationship
  8. Prospective Effectiveness Assessed Before Cover Is Placed
  9. Retrospective Effectiveness Measured Against Realised Prices
  10. The Offset Ratio Calculation Worked on Carbon Cover
  11. Regression as an Effectiveness Test and Its Assumptions
  12. Where Ineffectiveness in an Allowance Hedge Comes From
  13. Discontinuing a Carbon Hedge Relationship
M10 The Worked Programme and Its Limits Ch 117-127
  1. A Worked Compliance Hedge, Part One: Obligation and Curve
  2. A Worked Compliance Hedge, Part Two: Sizing and Placement
  3. A Worked Compliance Hedge, Part Three: Margin Through a Fall
  4. A Worked Compliance Hedge, Part Four: Roll and Surrender
  5. A Worked Compliance Hedge, Part Five: The Effectiveness File
  6. The Same Obligation Covered With Options Instead
  7. Judging the Hedger Against the Mandate, Not the Price
  8. A Carbon Hedge Policy That Can Actually Be Enforced
  9. Cover That Worked but Was Reported as a Failure
  10. What Listed Allowance Cover Cannot Do
  11. Where the Remaining Carbon Exposure Is Picked Up

The brochure gives each of these 127 chapters a paragraph on what it covers and what you can do once you have worked through it.

This is course 10 of twenty

It stands alone, and it is also the entry point to the Emissions and Carbon Desk Academy pathway.

Enrol or enquire See the whole pathway