Background: The latest global agreement on net-zero emissions encourages new studies on production inventory optimization that promote carbon emissions reduction without harming a company's profit performance, particularly because certain carbon-pricing regulations bind manufacturing companies....

This paper presents valuation models of emission allowance options under an emission trading scheme, operating in an open trading phase, where unused allowances are banked to subsequent phases without any limit. Empirical studies are carried out to show that allowance option prices exhibit...