Abstract
The possibility of low-probability extreme natural events has reignited the debate over the optimal
intensity and timing of climate policy. In this paper, we contribute to the literature by assessing the implications of low-probability extreme events on environmental policy in a continuous-time real
options model with “tail risk”. In a nutshell, our results indicate the importance of tail risk and call for
foresighted pre-emptive climate policies.
intensity and timing of climate policy. In this paper, we contribute to the literature by assessing the implications of low-probability extreme events on environmental policy in a continuous-time real
options model with “tail risk”. In a nutshell, our results indicate the importance of tail risk and call for
foresighted pre-emptive climate policies.
| Original language | English |
|---|---|
| Publisher | University of Dundee |
| Number of pages | 22 |
| Publication status | Published - Jun 2012 |
Publication series
| Name | Dundee Discussion Papers in Economics |
|---|---|
| Publisher | University of Dundee |
| No. | 267 |
| ISSN (Print) | 1473-236X |
Keywords
- Climate policy
- Extreme events
- Real options
- Levy process
