Financial Engineering Workshops - Luca Taschini, (University of Edinburgh Business School)

Title: Carbon Default Swap -- Disentangling the Exposure to Carbon Risk Through CDS
Abstract:
Using Credit Default Swap spreads, we construct and validate a forward-looking, market-implied carbon risk (CR) factor that captures how lenders price firms’ exposure to carbon regulation. The credit-risk impact of carbon regulation depends on its scope (breadth of coverage), stringency (share of emissions regulated), and the speed of mandated decarbonisation. Explicit carbon pricing sharpens lenders' evaluations of risk: for regulated firms, the cost of credit protection triples. This impact intensifies with a greater proportion of a firm’s direct emissions subject to regulation and varies by sector. Upward shifts in the term-structure CR factor lead lenders to anticipate that most financial impacts will materialise in the near term, underscoring the potential abruptness of transition-related repricing

Bio:
Luca's research is interdisciplinary and spans economics and applied finance. It cuts across the fields of environmental and resource economics, financial economics, and industrial organization. He has been applying his research to real-life policies (cap-and-trade and carbon taxes).
Luca is a Professor and Chair of Climate Change Finance, and the Director of the Centre for Business, Climate Change, and Sustainability (B-CCaS). Luca is a Visiting Senior Fellow at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and a Fellow at CESifo Energy and Climate Economics, Munich. Luca holds a PhD in Finance from the University of Zurich.

Faculty Events | Website | View More Events

Contact the organizers