REMARC Seminar

Irene Monasterolo (Boston University; Vienna University of Economics and Business) will present the paper “On the dependence of investor’s probability of default on climate transition scenarios“, co-authored with Stefano Battiston.

Abstract

Climate risk brings about a new type of financial risk that standard approaches to risk management are not adequate to handle. Amidst the growing concern about climate change, financial supervisors and risk managers are concerned with the risk of a disorderly low-carbon transition. We develop a model to compute i) the valuation adjustment of corporate bonds, depending both on climate transition risk scenarios and on companies’ shares of revenues across low/high-carbon activities, and ii) the corresponding adjustments of an investor’s Expected Shortfall and probability of default. Implications for climate financial risk management include that climate stress test exercises should allow for a wide enough set of scenarios in order to limit the underestimation of losses.

Keywords: Climate transition risk, climate policy scenarios, probability of default, corporate bonds, Expected Shortfall, climate financial risk assessment, risk management.

JEL Classification: G10, G32, Q54

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Image design: Fabio Pomini (fabiocpgrafica@gmail.com)

Photo: pexels.com

Starting Time

15:00

January 29, 2021

Ending Time

16:00

January 29, 2021

Address

Pisa (online)