Climate Risk, Securitization, and the Microstructure of Insurance Markets

The project goal is to assess the economic risk for financial and insurance markets arising from non tradable risk factors such as climatic changes. The increase of extreme weather events and the magnitude of insurance-linked losses associated with natural disasters calls for new forms of risk distribution beyond traditional actuarial methods. A global decrease of emissions can contribute to diminish economic risks and costs. Emission credits trading allow for a cost efficient methodology to hedge financial risks. We intend to investigate financial and insurance markets for climate risks and the economic impacts of emissions credit trading concepts on reinsurance companies.