Climate Change, Uncertainty and Financial Risk: Robust Approaches based on Time-Varying Parameters

This project develops econometric tools to assess climate-related financial risks and their implications for financial stability. Bringing together Scuola Normale Superiore and the Universities of Verona and Siena, it addresses uncertainty about future climate scenarios and the complexity of large portfolios and interconnected financial markets.

The research follows three main directions. First, it develops methods to quantify uncertainty in models with time-varying parameters, improving the assessment of potential portfolio losses. Second, it identifies climate risk factors and examines how financial exposures evolve over time, distinguishing climate-related effects from conventional financial drivers. Third, it uses dynamic network models and stress-testing techniques to investigate how climate shocks spread and become amplified across the financial system.

Expected outputs include methodological advances, empirical analyses and publicly available tools for monitoring climate-related financial vulnerabilities. The project aims to help investors, regulators and policymakers manage climate risks and support the transition towards a sustainable economy while preserving financial stability.

JEL: C58, G11, Q54