The significant impact that extreme weather events have on the financial, insurance, and energy sectors is no longer news, prompting companies to prioritize physical and transition risks along with macroeconomic risk when managing their risk exposure. As climate change intensifies, it is important that companies develop their risk management tools, incorporating climate risk and existing scenario models for their analysis. However, there is no specific model that is widely adopted across sectors to perform scenario analysis related to climate change. With that in mind, this research aims to fill that gap by investigating and developing a model that systematically integrates expert knowledge, research, and data.

This research is divided into two key projects, and a student is expected to work on
one of the projects:

Impact of Climate Risk on Catastrophe Bonds: This project involves studying how climate risk affects catastrophe bonds. We will conduct a comprehensive literature review, examining existing research on the impact of climate change on these bonds. Additionally, we will explore the various methodologies and approaches widely adopted in the financial markets for climate change scenario analysis.
Pricing Weather Derivatives: This project focuses on investigating and implementing different pricing models for weather derivatives. The initial step involves a literature review of papers discussing the dynamics of temperature using stochastic models. We will then explore models that effectively capture extreme climate events while maintaining analytical tractability. By pursuing these projects, we aim to investigate and develop models that can aid in managing the multifaceted risks associated with climate change.

Supervisor: Tolulope Fadina