5.5 Pricing Financial Market Instruments to Protect against, and to Speculate about, Climate Change: An Update

Tuesday, 8 January 2019: 9:30 AM
North 129A (Phoenix Convention Center - West and North Buildings)
Harvey Stern, Univ. of Melbourne, Melbourne, Australia

Handout (564.5 kB)

The author, in a number of papers, has explored the role of financial market instruments in the area of climate variability and change.

His most recent paper (Stern, 2018) took advantage of the emergence in financial markets of very long term maturity (100-year) bonds.

In so doing, it updated previous work to establish theoretical ‘fair value’ premiums (costs) for sets of call and put options about futures contracts related to the annual value of the global mean temperature.

These options were said to have been purchased at the end of 2015, all with a strike of the 2015 global mean temperature and possessing a premium (value) of $100 per °C at expiry.

The current paper updates Stern's (2018) work, utilising global mean temperature data up to 2017, and also an estimate of the 2018 global mean temperature, in order to establish new estimates of the theoretical 'fair value' premiums.

REFERENCE. Stern H (2018) The Dual Function of Financial Market Instruments in an Environment of Climate Change Uncertainty - Protection and Speculation. 9th Conf. on Weather, Climate, and the New Energy Economy, Austin, TX, 7-11 Jan. 2018, Amer. Meteor. Soc.

Supplementary URL: http://www.weather-climate.com

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