Type of Publication: Article in Collected Edition

Climate Risk in Structural Credit Models

Author(s):

Blasberg, A.; Kiesel, R.

Edition:

2nd Edition

Editor:

Benth, F. E.; Veraart, A. E. D.

Title of Anthology:

Quantitative Energy Finance: Recent Trends and Developments

pages:

247-267

Publisher:

Springer

Publication Date:

2023

ISBN:

978-3-031-50597-3

Digital Object Identifier (DOI):

doi:10.1007/978-3-031-50597-3_7

Link to complete version:

https://link.springer.com/chapter/10.1007/978-3-031-50597-3_7

Citation:

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Abstract

This survey article reviews the current state of literature on how structural models of credit risk are employed to model the impact of climate risk on financial markets. We discuss how the two prominent types of climate risk, physical and transition risk, are captured by the seminal Merton model and its well-known extensions. Theoretical and practical advantages and drawbacks are worked out and an outlook on possible model improvements is provided.