Pricing Uncertainty Induced by Climate Change

By Michael Barnett, William A. Brock, Lars Peter Hansen. The Review of financial studies, 2020

327 citations recorded by the source corpus.

Geophysicists examine and document the repercussions for the earth’s climate induced by alternative emission scenarios and model specifications. Using simplified approximations, they produce tractable characterizations of the associated uncertainty. Meanwhile, economists write highly stylized damage functions to speculate about how climate change alters macroeconomic and growth opportunities. How can we assess both climate and emissions impacts, as well as uncertainty in the broadest sense, in social decision-making? We provide a framework for answering this question by embracing recent decision theory and tools from asset pricing, and we apply this structure with its interacting components to a revealing quantitative illustration.

Subfields: Demography, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/4e133e3f986c0343bbc4fd0e3bf35cab45f3a0cf

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In Demography

1. George Skiadopoulos
2. Rastin Matin
3. Renato Faccini

In Economics and Econometrics

1. George Skiadopoulos
2. Rastin Matin
3. Renato Faccini
4. L. Pham

Citations in the corpus

• Dissecting Climate Risks: Are they Reflected in Stock Prices? (2021, methodology): “Given the multifaceted nature of climate change risk, we employ the Latent Dirichlet Allocation (LDA, Blei et al. (2003)), an unsupervised textual analysis method to dissect climate changes risks and construct our aggregate climate risk factors. LDA has recently started being used in economics and f”
• Climate Change News Risk and Corporate Bond Returns (2020, unknown): “Uncertainty about climate change impacts and climate model uncertainty can also affect the social cost of carbon (Barnett, Brock, and Hansen (2020)).”
• Climate Risk and Capital Structure (2019, unknown): “We find strong support for the conclusion that 1 See, for example, Andersson, Bolton, and Samama (2016a and 2016b), Daniel, Litterman, and Wagner (2016), Hansen, Brock, and Barnett (2018) and Engle et al. (2019).”