The DAAD-funded bilateral German-Portuguese project, “Pricing of Financial Instruments in Emission Markets” (PRISEMA), is fast approaching its conclusion in April 2026, marking the successful culmination of two years of fruitful scientific exchange. Led by Matthias Ehrhardt (Chair of Applied and Computational Mathematics, Wuppertal) and João Guerra (ISEG, Lisbon), the project has significantly strengthened the collaborative ties between the two research institutions, particularly benefiting young scientists through international research opportunities.
Tackling the Complexity of Emission Markets
The core aim of PRISEMA has been to develop new models and methods for the pricing of carbon emission allowances and renewable energy certificates. This work is crucial for understanding and managing the financial risks within these increasingly vital environmental markets.
The project focuses on stochastic structural models grounded in the underlying economic factors that drive the price of carbon credits. A key objective has been to derive a Forward-Backward Stochastic Differential Equation (FBSDE) for the allowance pricing process and to develop numerical solutions for the associated Partial Differential Equations (PDEs).
Research has extended beyond the basic framework to incorporate more realistic and complex market dynamics, including:
- More general processes for electricity demand.
- Models for cumulative emissions.
- The essential interaction between the electricity and emission markets.
This rigorous mathematical approach contributes directly to the development of robust, risk-neutral pricing frameworks for these assets. You can find more details about the project on the dedicated webpage: https://ehrhardt.uni-wuppertal.de/Projects/PRISEMA.html.
Key Milestones and Scientific Exchange
The DAAD exchange program’s goal of strengthening scientific dialogue and international experience has been highly successful, highlighted by several significant events in 2025:
🗓️ 3rd Lisbon-Wuppertal PRISEMA-Workshop
Held in Lisbon on June 24, 2025, the workshop showcased a broad spectrum of research in quantitative finance and emissions modelling. The diverse talks included:
| Speaker | Topic |
| Matthias Ehrhardt | Port-Hamiltonian Systems in Quantitative Finance |
| João Guerra | VIX pricing in the rBergomi model under a stochastic change of measure |
| Julia Ackermann | Optimal trade execution with stochastic cross-effects |
| Gonçalo Fonseca | Forward-Backward SDE’s with jumps and emissions modelling |
| Karel Nana | Detecting asset price bubbles using artificial neural networks |
| Miguel Falcão | Jump-diffusion modelling in emissions markets through an integro-differential equation |
| Daniel Cezar | Liquidity and counterparty credit risk in energy trading |
| Phuong Nguyen | New approach to minimize probability of Parisian ruin with reinsurance |
🌐 Minisymposium at SCF 25
The PRISEMA team co-organized a successful Minisymposium, “Advanced Pricing Models and Numerical Approaches for Emission Allowances and Renewable Energy Certificates,” as part of the “Stochastics & Computational Finance 2025” (SCF 25) conference, held in Lisbon from September 2-5, 2025, see https://scf2025.iseg.ulisboa.pt/.
Serving on the scientific committee alongside distinguished colleagues like Jean-François Chassagneux (Paris) and Carlos Vázquez Cendon (A Coruña), the event provided a crucial platform for discussing the latest advances in this specialized field.
The Final Chapter
As the project enters its final phase, we look forward to synthesizing the research findings and celebrating the successful collaboration. The project will formally conclude with the PRISEMA closing workshop in Wuppertal in January 2026. This final meeting will be an opportunity to present the project’s achievements and discuss avenues for future research collaboration between the German and Portuguese teams. 🤝