Current Research

Work in Progress

I am currently working on the following projects, which are at various stages of development.

  • Asset Pricing, Monetary Policy, and Physical Climate Risk (with Carina Fleischer)

This paper analyzes the interaction between physical climate risk, inflation, and monetary policy from an asset pricing perspective. We find evidence that climate shocks increase inflation in the short run. We embed this effect in a general equilibrium asset pricing model that builds on observable risk factors rather than latent factors.

We provide a simple model of the carbon premium that allows for biodiversity and climate risks. This analysis sheds light on the complex ways in which climate and biodiversity risks interact and how stock markets respond to these interconnected risks as they become more salient over time. We present empirical evidence on U.S. stock data that investors indeed jointly price firms’ exposure to climate transition risk and biodiversity risk. Our findings suggest that an increase in biodiversity risk increases stock returns, the more so if the company has higher emissions. Investors are thus more concerned about future financial performance of high-emission firms when biodiversity risk is high. This effect has become stronger after the Paris Agreement.

This paper analyzes the optimal portfolio and consumption decisions of a household facing energy price shocks. The household can respond to energy price volatility through two channels: reducing energy consumption or investing in energy-efficient home renovations. The household must balance immediate consumption needs, long-term investment objectives, and energy expenditures while managing uncertainty in energy prices. Our results show how energy price risk, house price risk, and biometric risk affect household portfolio composition and identify conditions under which energy efficiency investments become optimal. The model provides insights into household behavior under energy price uncertainty and has implications for policy design aimed at promoting energy conservation and residential energy efficiency improvements.

This paper examines optimal insurance and adaptation decisions of households facing physical climate risks in the form of flood events. We develop a stochastic control problem in which households must balance consumption, portfolio allocation, and risk management strategies when exposed to flood risk. The household can purchase flood insurance to transfer risk and invest in property to repair damages. We characterize optimal decision rules for insurance coverage, repair timing, and investment choices under uncertainty about flood frequency and severity. The results show that flood risk significantly affects household wealth accumulation and portfolio composition. These findings have implications for insurance market design and understanding household behavior in response to escalating physical climate risks.

We develop a tractable multi-country framework of climate risk with endogenous growth, international trade, recursive preferences, and strategic climate policy interactions. Countries transition between business-as-usual, moderate climate policy, and ambitious climate policy with transitions between regimes governed by a political Markov chain. We derive closed-form solutions for the social cost of carbon, optimal controls, and equilibrium exchange rates. We show that political transition risk affects asset prices through precautionary savings channels distinct from climate and macroeconomic disaster risk. Our calibration strategy matches both macroeconomic moments and asset pricing data across multiple regions, providing quantitative insights into the economic costs of policy uncertainty and delayed climate action in a non-cooperative world.

Permanent Working Papers (available for download from SSRN)

PDE Solver

I have developed a Matlab solver for parabolic (and elliptic) partial differential equations, which are common in finance and economics. As an example, the solver can determine the value function in an endowment economy with recursive preferences of the Epstein-Zin type leading to semi-linear PDEs, and can handle consumption plus two continuous state variables driven by Brownian and Poissonian shocks, as well as two (directed or undirected) Markov chains. Similarly, it can be applied to option pricing solving parabolic PDEs of the Black-Scholes type. Moreover, it can easily be extended to Hamilton-Jacobi-Bellman equations and more involved state variable dynamics. The solver will soon be available for download together with a readme file.