Work

Corporate credit risk modeling under carbon pricing uncertainty: A Knightian uncertainty approach

Year: 2024

Type: article

Abstract: This paper examines the financial implication of carbon pricing policies within Knightian uncertainty framework. Employing a dynamic behavioral credit risk model driven by Lévy jump-diffusion, we scrutinize how carbon pricing uncertainty influences default probability and securities value. We explore investors' strategic responses to ambiguity and assess their impact on investment decisions. Findings reveal that carbon pricing uncertainty exacerbate the margin of default risk with a moderating effect on stock value and investor become caution which alter corporate capital structure. This study contributes to the discourse carbon credit risk assessment and sustainable finance and to tackle policy-driven uncertainties in financial markets.

Source: Sustainable Futures

DOI: 10.1016/j.sftr.2024.100283

Authors: Chabi Marcellin Daki Dominique, Yixiang Tian

Institution: University of Electronic Science and Technology of China

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: gold

Estimated APC paid: $1,880