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Carbon Risk and Default Risk

In: CARBON FINANCE A RISK MANAGEMENT VIEW

Author

Listed:
  • MARTIN HELLMICH
  • RÜDIGER KIESEL

Abstract

In this chapter, we investigate how carbon risk affects the pricing of default-risky assets. We focus on credit CDS and (corporate) bonds, with an emphasis on the former as CDS spreads are a liquid and forward-looking indicator for the credit quality of a firm. Furthermore, CDS contracts are standardised with maturities up to 30 years and thus suitable to explore term structure effects of carbon risk. The risk premium that CDS spreads exhibits is purer than that of corporate bonds as there are no liquidity or structural effects.

Suggested Citation

  • Martin Hellmich & Rüdiger Kiesel, 2021. "Carbon Risk and Default Risk," World Scientific Book Chapters, in: CARBON FINANCE A RISK MANAGEMENT VIEW, chapter 10, pages 199-217, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800611023_0010
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    Cited by:

    1. Giulia Livieri & Davide Radi & Elia Smaniotto, 2023. "Pricing Transition Risk with a Jump-Diffusion Credit Risk Model: Evidences from the CDS market," Papers 2303.12483, arXiv.org.

    More about this item

    Keywords

    Climate Finance; Carbon Risks; Transition Risks; Emission Certificates; Green Bonds; Carbon Credits; Stress Tests; Machine Learning; Physical Risks; Carbon Markets; Carbon Disclosure; Carbon-Intensity; Commodity Markets; Climate Economics; Climate Risks; Big Data; Emission Certificates; Carbon Investors; Divestment;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G1 - Financial Economics - - General Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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