CLIMATE RISK PREMIA IN SOUTH-ASIAN EQUITY MARKETS: EVIDENCE FROM OPTION-IMPLIED TAIL RISK

Abstract

This study tests the fear that global warming will prevail in South-Asia in terms of the cost of insurance of a falling stock from South-Asia. The growth in global climate change has a major impact and specifically on people’s financial markets, regions. Currently little is done to determine the costs or the risks of natural disaster to emerging and developing countries. This text is about to present a study on risks in the markets of South Asia. This study looks at how market prices in South Asia are affected by great risks, mainly in reference to dangerous effects on the climate. Studies show that countries like India, Pakistan, and Bangladesh take into consideration climate when trading. The data convey that costs of climate loss are factored into these markets by external stakeholders. This research study is adding valuable information to the growing library of studies concerning climate loans while providing ideas for investors and those in control of finances relating to emerging markets. By explaining that dangerous weather should be included in long term models used by investors the risk of assets is lowered and much safer long-term investments are put in place.

Keywords: Climate risk premia, South-Asian equity markets, tail risk, option-implied, emerging markets, climate volatility, financial modeling.