Modelling carbon price dynamics with jump-diffusion and higher-order hidden Markov switching

Zhongxiu Chen

doi:10.1016/j.apm.2026.117203

Modelling carbon price dynamics with jump-diffusion and higher-order hidden Markov switching

2026-07-24

0

PRE

AI

Z

Zhongxiu Chen

Z

Zhehao Huang *

C

C ZHANG

Y

Yuanqi Zhao

DOI：10.1016/j.apm.2026.117203

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Abstract

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• Hybrid model captures trend, volatility, jumps, and regime shifts in carbon prices. • Integrates jump-diffusion with higher-order Markov switching dynamics. • Real-time recursive filtering enables adaptive estimation and forecasting. • Validated using real-world emissions trading data across multiple markets. • Demonstrates high predictive accuracy and robustness.

Keywords:

Carbon price modelling

Jump-diffusion process

Higher-order hidden Markov model

Recursive filtering

Self-calibrating estimation

Modelling carbon price dynamics with jump-diffusion and higher-order hidden Markov switching

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