The Department of Finance and Risk Engineering welcomes Bruno Kamdem, Co-founder and Principal of a Startup Actuarial Consulting firm, Lepton Actuarial & Consulting, LLC, to the BQE Lecture Series.
Tradable Carbon Permits Auctions Under Regulation and Competition
A silver lining to the COVID-19 pandemic has been a significant decrease in greenhouse gas emissions around the world. Woefully, if governments do not prioritize policies that address climate change, emissions are likely to return to pre-pandemic levels or even get worst. To be effective, policies intended to reduce CO2 emissions must integrate competition within commodity extracting and commodity utility companies. In this paper, we successfully address this challenge by formulating and pricing a new carbon auction derivative that deals with the competition-regulation dichotomy in carbon markets. We define a new type of barrier derivative, which is simultaneously a put and a call option on the carbon permit. This new carbon auction derivative complies with the dynamics of both the emission level and the carbon auction quote, both of which are highly correlated interdependent variables. Around the emission level, we expound on the quantity of the commodity produced in a non-cooperative differential game, of which the Nash equilibrium is defined. Applying our model to major oil companies shows that this new carbon auction derivative can be used as a cushioning tool for extracting more while polluting less.
Bruno Kamdem is the Co-founder and Principal of a Startup Actuarial Consulting firm, Lepton Actuarial & Consulting, LLC, based in New York. Dr. Kamdem concomitantly teaches at New York University, Tandon School of Engineering, within the Finance and Risk Engineering Department. In the past, he has taught at George Washington University, the University of Maryland, and Loyola University. 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’s current research lies in the intersection of credit risk and climate risk where he examines the physical, liability, and transitions risks related to climate risks while assessing institutional delinquency risks using the structural credit risk model. Bruno has published articles at the Journal of Fixed Income (Institutional Investor), Energy Policy, Renewable, and Sustainable Energy Reviews. Some of his most recent researches were presented at the 2021 Eastern Finance Association Annual Conference, the 2021 World Business Strategies Ltd – ESG & Climate Risk in Quantitative Finance Conference, the October 22, 2020 – Brooklyn Quant Experience Lecture Series, New York University, the October 22, 2019 – Financial Mathematics Seminar, Johns Hopkins University. For several years, Bruno has accumulated experience working with the scientific typesetting tool LATEX, with analysis & modeling tools such as Systems Dynamics (iThink), Matlab, GAMS, MINITAB, MATHEMATICA, and MAPLE. Bruno came to the U.S. alone in his twenties with just a few dollars in his pocket, but, through scholarships and grants, he managed to pull himself up by his bootstraps. Bruno obtained aPh.D. in Operations Research from the School of Engineering and Applied Science at George Washington University, an M.S. in Applied Mathematics, and a B.S. in Mathematics & Economics, both from the University of Maryland, Baltimore County.