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Mathematics
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New Advances in Quantitative Environmental Finance
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New Advances in Quantitative Environmental Finance

A special issue of Mathematics (ISSN 2227-7390). This special issue belongs to the section "Financial Mathematics".

Deadline for manuscript submissions: 30 September 2024 | Viewed by 1602

Special Issue Editors

Prof. Dr. Enrique Villamor

E-Mail Website
Guest Editor
Department of Mathemtics and Statistics, Florida International University, Miami, FL 33199, USA
Interests: stochastic processes and diffrential equations; portfolio optimization; pricing and hedging models; partial differential equations; mathematical finance
Prof. Dr. Luis Seco

E-Mail Website
Guest Editor
Department of Mathematics, University of Toronto, Toronto, ON M5S 3E6, Canada
Interests: mathematical finance; mathematical physics; machine learning; artificial intelligence

Special Issue Information

Dear Colleagues,

Motivated by climate change, recent actions by businesses and governments around the world are merging the formerly isolated disciplines of environmental studies and finance. In response, new interdisciplinary research has been created around concepts such as “sustainability” and “climate”, “climate finance”, “sustainable finance”, “carbon finance”, “environmental finance.”

By linking theories and modeling techniques in finance and the environmental sciences via mathematics and data science, and then studying the practical applications of these to environment-linked securities, we aim to assess, manage, and reduce all manner of environmental- and climate-related risks that are currently threatening our planet. Actions and solutions require financing, so understanding the generation and flows of finance is essential to understand large-scale environmental change and management.

This new interdisciplinary research topics studies environment-linked securities and insurance methods, and their associated legal and policy aspects, which fund natural hazard recovery, ecosystem conservation and restoration, the production of weather-dependent renewable energy, and infrastructure for adaptations to climate change, and sea-level rises. We are looking for research that integrates how the world works (modern finance) and how the planet works (sciences).

Examples include: catastrophe bonds (that fund recovery from hurricanes, floods, earthquakes, and volcanic eruptions), weather derivatives (that hedge the financial risks of weather-dependent renewable energy projects, as well as agricultural production), emission trading systems to reduce emissions, green bonds, ESG portfolios, and debt-for-nature swaps that fund the creation and management of aquatic and terrestrial ecosystems. 

In this Special Issue, we aim to collect review, expository and original papers dealing with the interdisciplinary research described above. We welcome both theoretical and empirical contributions.

Prof. Dr. Enrique Villamor
Prof. Dr. Luis Seco
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Mathematics is an international peer-reviewed open access semimonthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 2600 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • green bonds
  • real options analysis
  • catastrophe bonds
  • weather derivatives
  • debt for nature swaps
  • emissions trading systems
  • ESG portfolios

Published Papers (1 paper)

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Research

25 pages, 7997 KiB  
Article
Typology and Design of Parametric Cat-in-a-Box and Cat-in-a-Grid Triggers for Tropical Cyclone Risk Transfer
by Guillermo Franco, Laura Lemke-Verderame, Roberto Guidotti, Ye Yuan, Gianbattista Bussi, Dag Lohmann and Paolo Bazzurro
Mathematics 2024, 12(11), 1768; https://doi.org/10.3390/math12111768 - 6 Jun 2024
Viewed by 1068
Abstract
The insurance industry has used parametric solutions to transfer catastrophe risks since the 1990s. Instead of relying on a lengthy process to assess a claim, these products pay the insured a pre-agreed amount if the physical characteristics of the event fulfill pre-defined conditions. [...] Read more.
The insurance industry has used parametric solutions to transfer catastrophe risks since the 1990s. Instead of relying on a lengthy process to assess a claim, these products pay the insured a pre-agreed amount if the physical characteristics of the event fulfill pre-defined conditions. Cat-in-a-box or cat-in-a-circle triggers, commonly used tools for tropical cyclone risk transfer, provide a payout to the insured if the track of a hurricane crosses the perimeter of a geographic area defined by a polygon or a circle with a certain intensity. Cat-in-a-grid solutions are novel and more sophisticated. They rely on a set of multiple cat-in-a-box triggers arranged on an orthogonal grid. The consideration of multiple geographic domains instead of a single box or circle is helpful to reduce basis risk, i.e., the difference between the parametric loss estimate and the target loss. In the case study for Miami presented here, for instance, a cat-in-a-grid solution showed 18.5% less basis risk than a typical cat-in-a-box alternative. To organize the different types of triggers within a common framework, we classify the existing alternatives based on whether they use a single geographic domain (like a box or a circle) or multiple domains (like a grid). We discuss their advantages and disadvantages and describe the process required to calibrate any one solution with the help of a catastrophe-risk model. We focus, in particular, on the analysis and construction of cat-in-a-grid triggers, the alternative that we believe offers the greatest potential for global standardization and adoption. Full article
(This article belongs to the Special Issue New Advances in Quantitative Environmental Finance)
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