The Department of Finance and Risk Engineering welcomes Bruno Kamdem, Professorial Lecturer, The George Washington University, to the BQE Lecture Series.
Optimal Strategies for Oil Production and Taxation Under Cap‑and‑Trade
Rising global oil production is contributing to the increase of domestic revenues through a variety of fiscal mechanisms in many governments around the world. Concomitantly, the global low‑carbon transition is compelling the same governments to require special taxes such as carbon tax on oil fields. This paper develops a repertoire through which an oil field extraction policy and a government fiscal policy are optimal under carbon emissions constraints. Traditional models have not been able to capture the mean reverting regime‑switching jump‑diffusion dimension of the oil price as well as the stochastic differential game aspect of the extraction‑taxation dichotomy under carbon emissions constraints. On the one hand, to account for the sensitivity of the oil price to global and seasonal macroeconomic parameters, we model its evolution as a mean reverting regime‑switching jump‑diffusion process. On the other hand, as oil producing countries rely on taxes levied on oil companies whose aim is to maximize revenues generated from their extracting activities, we categorize our model as a stochastic differential game problem. The existence of a Nash Equilibrium is proven. Value functions of the stochastic differential game problem are characterized as the unique viscosity solutions of the corresponding Hamilton Jacobi Isaacs equations. Under Greenhouse gas emissions constraints, optimal extraction and fiscal policies are derived. In the light of a numerical blueprint, our analysis holds that a strategic cap‑and‑trade fiscal protocol under which oil producing governments and oil companies efficiently cooperate can yield positive effects on climate policies.
Bruno Kamdem is the Co‑founder and Principal of Lepton Actuarial & Consulting, LLC (http://leptonactuarial.com/), a New York based professional firm. Dr. Kamdem concomitantly teaches at the George Washington University, School of Engineering and Applied Science in the department of Engineering Management & Systems Engineering. Prior to consulting and teaching, he worked with the Office of Research, Evaluation, & Statistics at the Social Security Administration where he advised the commissioner on mathematical statistical trends regarding Medical‑ Vocational Guidelines and formulated models involving retirement probabilities for multiple years designed for optimizing individual retirement decisions. Bruno has published articles at the “Renewable & Sustainable Energy Reviews” (Impact Factor: 12.110) and the “Energy Policy” journal, along with two forthcoming papers at the “Review of Economics and Statistics” and “Econometrica”. For several years, Bruno has accumulated experience in teaching and in working with Analysis & Modeling tools (iThink, GAMS, MINITAB, MATHEMATICA, MAPLE), Applications & Operating Systems (System Dynamics, SAS‑Visual Analytics, e‑Enterprise, MATLAB‑Simulink), and Data Management applications (VBA, R, SAS, MATLAB). Bruno’s background encompasses a Ph.D. (Systems Engineering, Operations Research) from the School of Engineering and Applied Science at the George Washington University, an M.S. (Applied Mathematics), and B.S. (Mathematics & Economics), both from the University of Maryland, Baltimore County.