QUASAR Cloud: Carbon Trading

Companies trading emission allowances face the challenge of determining the timing and volumes of their trades while balancing the cost of compliance against the risk of non-compliance. The key to success lies in devising a trading strategy that navigates various sources of risk in an optimal way - risks that arise from price volatility, uncertain volumes, margin calls, and regulatory changes.

Our emission allowance trading model offers carbon traders immediate decision support and empowers companies to calibrate an optimal trading strategy that maximizes rewards while accounting for the various sources of risk. By transitioning from human-based analytics to model-driven decision optimization, our model reduces the workload for traders and risk managers, offering an important building block towards decision automation.

What's inside the software?

KEY FEATURES

Calculate the optimal mix of futures and spot trading
Trade-off futures premium against cost-of-capital
Joint stochastic process of spot and futures prices
Value-at-risk optimization

Highly customizable model and interactive dashboard
Rapidly deployed and securely hosted on AWS VPC
Automate repeated optimization tasks
Fully integrated in the QUASAR® Cloud platform

A detailed model of spot and futures trading

Quantego's model for emission allowance trading consists of a carbon price model and a decision model:

The price model captures (a) the stochastic evolution of spot prices, (b) the random convenience yield that drives futures contract prices, and (c) limited liquidity of spot and futures products.
The decision model (a) anticipates future portfolio rebalancing when new contracts become available, (b) accounts for changes in the market impact cost of trading in different products at different points in time, and (c) respects institutional order limits and hedge targets.

A ready-to-use graphical user interface

The model is available as ready-to-use yet highly customizable software solution deployed through QUASAR® Cloud.

Users can import and manage input data, execute optimization runs, inspect and analyze trading strategies, create interactive charts and reports, as well as export result data and easily share it across the organization. QUASAR® Cloud can be obtained as subscription service or set up on-premise via AWS VPC.

The world's most powerful stochastic programming solver

The model is driven by the powerful QUASAR® stochastic programming solver that combines the latest advancements in machine learning and mathematical optimization. QUASAR®’s highly efficient algorithms can solve the most complex stochastic-dynamic programming problems with hundreds of time stages, thousands of variables and millions of possible outcomes at an unprecedented speed.

Profitability increase and risk reduction

Optimal timing of futures and spot trading
Reduce transaction cost by trading when products are most liquid
Diversify risk by spreading trading volumes across products and time

Risk management and compliance

Follow best practices in portfolio optimization
Detailed disclosure of hedging decisions
Avoid error-prone and opaque spreadsheet calculations

Automated monitoring and reporting

Trading recommendations and opportunity outlook
Monitoring of company’s future exposure
Value-at-risk and cashflow-at-risk for different hedging strategies

Hosted on QUASAR® Cloud

Unify multiple models and its data on one platform
Customizable model and reports
Automate repeated optimization tasks
Share model output as interactive reports across the organization

Events

CEMA 2023: Talk on optimal emission allowance trading for industrial buyers

Jun 20–21, 2023 | Budapest, Hungary

At this years Annual Meeting of the Commodity and Energy Markets Association in Budapest, Professor Nils Löhndorf speaks about optimal emission allowance trading for industrial buyers.

Carbon Trading