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An analytical framework to price long‐dated climate‐exposed assets

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Publicado en:Quantitative Economics vol. 16, no. 4 (Nov 1, 2025), p. 1093-1147
Autor principal: Chikhani, Pauline
Otros Autores: Renne, Jean‐Paul
Publicado:
John Wiley & Sons, Inc.
Materias:
Climate change
Risk aversion
Recursion
Permafrost
Premiums
Emissions
Prices
Calibration
Derivatives
Maturity
Risk
Risk premiums
Assets
Simulation
Uncertainty
Financial instruments
Carbon
Temperature
Consumption
Cost control
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Resumen:This paper uses a tractable stochastic integrated‐assessment model to analyze the influence of climate change on asset returns across time and maturity. Quasi‐analytical, or recursive, formulas allow to price various long‐dated assets, including fixed‐income products, derivatives, and equities. We find that climate risks will increasingly drive down long‐term risk‐free yields, reducing them by about 30 basis points by the end of the century. This decline reflects weaker growth and increased uncertainty, leading to a rise in precautionary savings. We illustrate the concept of climate risk premiums by examining model‐implied prices of long‐term assets vulnerable to sea level rise or temperatures. Climate risk premiums are particularly sensitive to damage assumptions.
ISSN:1759-7323
1759-7331
DOI:10.3982/QE2570
Fuente:ABI/INFORM Global