Rossella Agliardi UNIBO
Green bonds
Abstract: Green bonds are part of the solution to the formidable task of financing the transition to low carbon emissions and other environmentally-friendly investments. These innovative securities have grown rapidly and are expected to expand further as the demand from investors remains high. We introduce the main definitions and concepts, and survey the green bond literature with a special emphasis on the 'greenium'. Then a structural model for the pricing of green bonds is presented.
Peter Tankov ENSAE, Institute Polytechnique de Paris
Corporate debt value under transition scenario uncertainty
Abstract: We develop a structural model for pricing a defaultable bond issued by a company subject to climate transition risk. We assume that the magnitude of the transition risk impacts depends on a transition scenario, which is initially unknown but is progressively revealed through the observation of the carbon price trajectory. The bond price, credit spread and optimal default/restructuring thresholds are then expressed as function of the firm's revenue level and the carbon price. Numerical implementation of the resulting formulas is discussed and illustrated using real data. Our results show that under transition scenario uncertainty, carbon price adjustments are more likely to trigger a default than when the true scenario is known because after each adjustment the more environmentally stringent scenario becomes more likely. We also find that faster discovery of scenario information leads to higher credit spreads since better information allows the shareholders to optimize the timing of default, increasing the value of default option and decreasing the bond price. Joint work with Theo Le Guenedal. The paper is available at: https://ssrn.com/abstract=4152325.
Giulia Livieri Scuola Normale Superiore, Pisa
Modeling an example of green transition
Abstract: This research aims to understand some aspects of the mechanism of the green transition. It is part of a collaboration between mathematicians and philosophers of ethics, politics, and society aiming to understand mechanisms of green energy transition where some kind of interaction between many subjects and collective behaviors seem to play a role. Green transition is a wide phenomenon that can find its realization in different areas: installation of solar photovoltaics, purchase of electric cars, reduction of the consumption of meat, reduction of the air transport, and so on. We have identified as a first example the case of solar photovoltaic, intending to explain the time series of different nations and, for Italy, different provinces. In the phenomenon of transition to photovoltaic, different types of agents are involved: individuals, industries, public entities, and agricultural entities. We focus mainly on the behavior of industries and individuals. We will show, also by some numerical simulations, how different agents require different mathematical tools. In particular, the time series related to industries seems to be properly described by differential games. The time series of individuals is quite different. Intrigued by this difference, we propose a Markov Chain individual-based model to describe the decisional process of an individual. We focus on the set of individuals that have elaborated a certain positive opinion on the transition to photovoltaic. By collaborating with the philosophical group, we have detected procrastination as one of the main obstacles to transitioning. The introduction of such phenomenon into the modelizations induces the model to be time-inconsistent.