Quantitative Sustainable Economics and Finance 
Time: 11.00 am
Date:22th of January 202
Room 3049

Lionel MELIN (EDHEC) “Quantifying Climate Risk Premia”

Abstract : What are the quantified risks that climate change poses for financial markets? The physics of climate change are well understood, with their uncertainty. Empirical studies provide estimates of the economic damage from rising global temperatures and the costs of curbing such a rise. We build on this basis a precisely calibrated dual framework: linking a climate module with a long-run-risks workhorse asset-pricing model. It incorporates both physical damage and transition cost channels, while capturing the economic activity impact on temperatures. Our framework delivers closed-form solutions for climate-affected and time-dependent risk-free rate, equity risk premia and price-dividends ratios. We show that chronic climate risks alone, away from tipping points, result in an increase of the equity risk premium by almost 20% in a 3°C world. Enough to anticipate a likely market repricing.

Organizers:  Patricia Crifo, Emmanuel Gobet, Peter Tankov, Gauthier Vermandel, and Olivier David Zerbib

Sponsors:
CREST-CMAP