Prometheus Bound |
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viii | |
Preface |
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xi | |
About the Authors |
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xv | |
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Part I Carbon Finance --- Fundamentals |
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1 | (80) |
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3 | (20) |
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1.1 Climate Change Is Happening |
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3 | (6) |
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3 | (2) |
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5 | (1) |
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1.1.3 Scientific Evidence |
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6 | (3) |
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1.2 Global Risk Management |
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9 | (5) |
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1.2.1 International Climate Negotiations: Conference of the Parties (COP) |
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9 | (1) |
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1.2.2 The Paris Agreement |
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10 | (3) |
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1.2.3 The Role of Finance |
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13 | (1) |
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14 | (9) |
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14 | (3) |
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1.3.2 Probabilities of Temperature Increases |
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17 | (1) |
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1.3.3 Reference Scenarios |
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18 | (2) |
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20 | (3) |
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23 | (22) |
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2.1 Climate Change Policy |
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23 | (3) |
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23 | (3) |
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2.2 Putting a Price on Carbon |
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26 | (5) |
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2.2.1 Tax vs. Emission Trading |
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27 | (2) |
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2.2.2 Multiple Policy Instruments |
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29 | (2) |
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2.3 Emission Trading Schemes |
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31 | (8) |
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31 | (1) |
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2.3.2 Current Emission Trading Schemes |
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32 | (2) |
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2.3.3 The EU ETS as an Example of Trading Schemes |
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34 | (3) |
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37 | (2) |
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39 | (6) |
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45 | (16) |
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45 | (5) |
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50 | (2) |
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52 | (2) |
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3.4 Stranded Assets and Carbon Bubble |
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54 | (2) |
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56 | (5) |
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61 | (20) |
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4.1 What Should the Price for Carbon Be? |
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61 | (7) |
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61 | (2) |
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4.1.2 Risk Aversion and Intertemporal Substitution |
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63 | (3) |
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4.1.3 Ambiguity and Uncertainty |
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66 | (2) |
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4.2 Asset Pricing Approaches |
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68 | (6) |
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4.2.1 Discrete-Time Models |
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68 | (2) |
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4.2.2 Continuous-Time Models |
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70 | (4) |
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4.3 What Do the Markets Think? |
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74 | (7) |
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4.3.1 Green Impact Investing |
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74 | (4) |
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4.3.2 Green vs. Brown Stocks |
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78 | (3) |
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Part II Carbon Finance --- Data |
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81 | (84) |
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5 Carbon Finance and Artificial Intelligence |
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83 | (26) |
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5.1 A Brief Introduction to Machine Learning |
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84 | (8) |
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5.1.1 Linear and Generalised Linear Models |
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84 | (3) |
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5.1.2 A Classification of ML Methods |
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87 | (2) |
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5.1.3 ML-Based Estimation of Carbon Intensities |
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89 | (3) |
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5.2 Applying AI to Carbon Risk |
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92 | (10) |
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92 | (3) |
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5.2.2 Building an AI model |
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95 | (6) |
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5.2.3 Data Protection/Differential Privacy |
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101 | (1) |
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102 | (7) |
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5.3.1 Horizontal Federated Learning |
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102 | (3) |
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5.3.2 Vertical Federated Learning |
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105 | (1) |
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5.3.3 Rationale for the Use of Federated Learning |
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105 | (4) |
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6 Disclosure and Data Requirement |
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109 | (16) |
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109 | (4) |
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6.1.1 The Need for Disclosure Standards |
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109 | (1) |
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6.1.2 Current State of Disclosure |
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110 | (2) |
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112 | (1) |
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113 | (2) |
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6.3 Federated Disclosure and Sustainability Ratings |
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115 | (10) |
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6.3.1 Methodology of Ratings |
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115 | (3) |
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118 | (2) |
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6.3.3 Security Techniques |
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120 | (2) |
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6.3.4 Application and Outlook |
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122 | (3) |
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7 Markets for Trading Carbon Risk |
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125 | (40) |
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7.1 Carbon Rights and Offsets |
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125 | (11) |
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125 | (2) |
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7.1.2 Current Status of the Voluntary Carbon Market |
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127 | (1) |
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7.1.3 Risks Associated with Tradable Carbon Rights |
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128 | (4) |
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7.1.4 Role of the Trading Infrastructure |
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132 | (2) |
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7.1.5 Market Integrity, Transparency, and Fairness |
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134 | (1) |
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7.1.6 Challenges in the Carbon Market |
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135 | (1) |
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7.2 Development of Carbon Credit Markets |
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136 | (3) |
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7.3 Blockchains --- A Short Introduction |
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139 | (9) |
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139 | (7) |
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7.3.2 Blockchains as Trading Infrastructure |
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146 | (2) |
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7.4 A Blockchain-Based Trading Infrastructure for Carbon Credits |
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148 | (17) |
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7.4.1 Setting Up Trading Infrastructure |
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151 | (9) |
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7.4.2 Blockchain Use Cases |
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160 | (5) |
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Part III Carbon Finance --- Markets |
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165 | (104) |
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8 Emission Certificates on Financial and Energy Markets |
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167 | (18) |
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8.1 Dynamics of EU ETS Certificates |
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167 | (4) |
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8.2 Stochastic Models for Emission Certificates |
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171 | (6) |
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171 | (3) |
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8.2.2 Reduced-Form Models |
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174 | (3) |
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8.3 Effects on Financial and Energy Markets |
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177 | (8) |
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8.3.1 EUA Certificates and Financial Markets |
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177 | (3) |
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8.3.2 EUA Certificates on Electricity Markets |
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180 | (1) |
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8.3.3 Green Power Purchase Agreements |
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181 | (4) |
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9 Carbon Risk and Empirical Asset Pricing |
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185 | (14) |
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9.1 Constructing Factor Models |
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185 | (3) |
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9.1.1 The Capital Asset Pricing Model and Multi-Factor Models |
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185 | (2) |
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187 | (1) |
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9.2 Stock Returns and Carbon Risk |
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188 | (5) |
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9.2.1 Carbon Risk as an Additional Factor in Multi-Factor Models |
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188 | (2) |
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9.2.2 Is There a Carbon Risk Premium in Equity Markets? |
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190 | (3) |
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9.3 Carbon Risk, Cost of Equity Capital, and Cost of Debt |
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193 | (2) |
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9.4 Carbon Risk and Machine Learning |
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195 | (4) |
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10 Carbon Risk and Default Risk |
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199 | (20) |
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10.1 Modelling Default Risk |
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199 | (5) |
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10.1.1 Merton's Structural Model |
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199 | (3) |
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10.1.2 Credit Default Swaps |
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202 | (1) |
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10.1.3 The Importance of CDS Spreads for (Bank) Risk Management |
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203 | (1) |
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10.1.4 Determinants of CDS Spreads |
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203 | (1) |
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10.2 CDS Spreads and Carbon Risk |
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204 | (5) |
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204 | (2) |
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10.2.2 ESG-Based Carbon Indicator |
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206 | (3) |
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10.3 Heterogeneity of Carbon Risk Effect |
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209 | (3) |
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10.3.1 Quantile (Panel-) Regression |
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209 | (1) |
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10.3.2 Quantile Analysis of CDS Spreads |
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210 | (2) |
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10.4 Carbon Risk and Bonds |
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212 | (7) |
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10.4.1 Bond Prices and Carbon Risk |
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213 | (2) |
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10.4.2 Further Bond Market Studies |
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215 | (4) |
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219 | (12) |
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219 | (5) |
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11.2 Green Bond Standards |
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224 | (2) |
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226 | (5) |
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12 Carbon Risk and Financial Institutions |
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231 | (14) |
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12.1 Standard Risk-Management Considerations |
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231 | (2) |
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12.2 The Role of Central Banks |
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233 | (2) |
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235 | (10) |
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12.3.1 Design of Stress Tests |
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235 | (5) |
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12.3.2 Applications of Stress Tests |
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240 | (5) |
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13 Carbon Risk and Investors |
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245 | (24) |
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13.1 Carbon Risk and Investment Portfolios |
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245 | (3) |
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13.1.1 The Current State of Play |
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245 | (2) |
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13.1.2 Carbon Accounting for Equity Portfolios |
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247 | (1) |
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13.2 Hedging Climate Risk |
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248 | (4) |
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13.2.1 A News-Based Climate Risk Indicator |
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248 | (1) |
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13.2.2 Portfolio Approaches |
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249 | (3) |
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13.3 Sustainability Optimisation |
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252 | (17) |
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252 | (1) |
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13.3.2 Sustainability Filters: Relevant Data and Example Applications |
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252 | (9) |
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13.3.3 Portfolio Optimisation under Sustainability Constraints: A Mathematical Model |
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261 | (8) |
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Appendix A Basics from Probability Theory and Financial Mathematics |
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269 | (12) |
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Appendix B Federated Learning Algorithm |
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281 | (16) |
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281 | (7) |
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B.1.1 Federated Median in the Range [ 0, 1] |
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281 | (2) |
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283 | (1) |
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B.1.3 Determining Participating Companies |
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283 | (1) |
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B.1.4 Remarks on Optimisation |
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284 | (1) |
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B.1.5 Local Rank Determination |
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285 | (3) |
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288 | (5) |
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293 | (4) |
Bibliography |
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297 | (14) |
Index |
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311 | |