Financial Modeling of Climate-related Risks

Le 13 décembre 2022 de 14:00 à 17:00
Institut Louis Bachelier, 75002 , Paris France
Institut Louis Bachelier


Thesis defense presentation by Théo Le Guenedal


This research project aims at estimating financial risks related to climate change. Beyond the applications and quantitative findings, the main objective of the chapters of this thesis is to provide a structural and methodological framework that is generalizable, in order to facilitate their integration by practitioners.

The first chapter proposes a bottom-up measure of transition risk, which can be incorporated with classical risk models (Merton or credit risk model). This "cost-based" approach is limited to the directly polluting sectors, which leads to the second chapter, which allows for the diffusion of transition risk through the value chain. These approaches offer a static structure that allows for a fixed scenario stress-test but not for pricing the bonds by considering heterogeneous scenarios and the probability of realization. To this end, chapter three proposes a pricing model that integrates a Bayesian approach in updating scenario probabilities based on observed jumps in carbon pricing mechanisms. Finally, the last chapter proposes a Monte-Carlo methodology for simulating annual damages caused by tropical cyclones. The conversion of raw climatic data into a synthetic database of losses is achieved by coupling statistical and thermodynamic relationships. The exposure of physical assets, the dynamics of socio-economic factors, local population densities and specific vulnerabilities in different regions of the world are borrowed from different segments of the literature, and combined to obtain a complete model of the classical triptych necessary for the study of physical hazards: hazard intensity x exposure x vulnerability generalizable and homogeneous across countries. The resulting signal can then be simply included in credit risk models equating annualized damages with additional debt.


Le 13 décembre 2022 de 14:00 à 17:00


Institut Louis Bachelier, Palais Brongniart, 4th floor, Seminar room, 28 Pl. de la Bourse, 75002 , Paris France


Institut Louis Bachelier