Identification of Breakpoints in Carbon Market Based on Probability Density Recurrence Network

The scientific judgement of the structural abrupt transition characteristics of the carbon market price is an important means to comprehensively analyze its fluctuation law and effectively prevent carbon market risks. However, the existing methods for identifying structural changes of the carbon market based on carbon price data mostly regard the carbon price series as a deterministic time series and pay less attention to the uncertainty implied by the carbon price series. We propose a framework for identifying abrupt transitions in the carbon market from the perspective of a complex network by considering the influence of random factors on the carbon price series, expressing the carbon price series as a sequence of probability density functions, using the distribution of probability density to reveal the uncertainty information implied by carbon price series and constructing a recurrence network of carbon price probability density. Based on the community structure, the break index and statistical test method are defined. The simulation verifies the effectiveness and superiority of the method compared with traditional methods. An empirical analysis uses the carbon price data of the European Union carbon market and seven pilot carbon markets in China. The results show many abrupt transitions in the carbon price series of the two markets, whose occurrence period is closely related to major events.

Automated summary

This study proposes a method for identifying abrupt transitions in the carbon market from the perspective of a complex network. By considering the influence of random factors on the carbon price series, a recurrence network of carbon price probability density is constructed. The method defines a break index and statistical test method based on the community structure. Empirical analysis shows that there are many abrupt transitions in the carbon price series of the two markets, which are closely related to major events.