Corporate debt value under transition scenario uncertainty

• Published in: Mathematical finance Vol. 35; no. 1; pp. 40 - 73
• Main Authors: Le Guenedal, Theo, Tankov, Peter
• Format: Journal Article
• Language: English
• Published: Oxford Blackwell Publishing Ltd 01.01.2025
• Subjects: Adjustment; Carbon; carbon tax; climate transition risk; Company structure; Corporate debt; Credit; default risk; endogenous default; Environmental tax; Optimization; scenario uncertainty; Stockholders; Structural models; Taxation; Thresholds; Uncertainty; Value
• ISSN: 0960-1627; 1467-9965
• DOI: 10.1111/mafi.12441

We develop a structural model for pricing a defaultable bond issued by a company subject to climate transition risk. We assume that the magnitude of the transition risk impacts depends on a transition scenario, which is initially unknown but is progressively revealed through the observation of the c...