Stationary mean-field control model proposed for carbon market stability reserves
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René Aïd, Federico Cannerozzi, and Giorgio Ferrari released a new research paper modeling the design of carbon market stability reserves as a stationary mean-field singular control problem, deriving an optimal mechanism-dependent interval rule with four reflection thresholds. Calibrated to the EU Emissions Trading System (EU ETS), the thresholds derived from the model are comparable in magnitude to existing market stability reserve rules. Comparative static analysis shows that volatility is the primary determinant of intervention intervals, while the frequency and duration of crisis mechanisms have limited impact. The study also proposes a dual-threshold simplified policy based on mean mechanism dynamics, which can closely replicate the optimal mechanism-dependent policy in terms of liquidity and intervention scale.
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- arXiv q-finStationary Mean Field Model for Carbon Market Stability Reserves
This study models the design of carbon market stability reserves as a stationary mean field singular control problem, where the optimal policy is a mechanism-dependent interval rule with four reflection thresholds. Thresholds calibrated to the EU ETS are comparable in magnitude to existing market stability reserve rules, with volatility being the primary determinant of intervention intervals. A dual-threshold policy based on average mechanism dynamics can closely replicate the optimal mechanism-dependent policy in terms of liquidity and intervention scale.
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