European Option Binomial Tree Method in the Carbon Trading Exchange on the Condition "Carbon Finance"

In this paper, it has a brief introduction of the recent developments in the carbon market, choosing carbon finance background as a starting point. The high carbon trading volume provides the good market prospects for the integration between relevant financial system and market. Meanwhile, market segmentation, the non-institutional facilities among different trade system, and other potential risk factors cause the problems about investors access, risks avoid and investment decisions. For this reason, the paper analysis the characteristics of this option and the actual development of carbon finance come to conclusion that the trading bodies more diversification, trading platform more perfection, the subject matter more marketable, options trading more mature. These provides the growing room of cross market transaction. European option binary tree method applied to price carbon has the application.lt discusses the carbon credit indicators are traded between EU ETS and CCX by using the method, based on the following hypothesis. Exchange rates,supply and demand balance, good circulation and nonexistence risk return. All these offer the theory that option will be applied in the carbon finance market.