Scholars published a paper on optimal portfolio selection under risks of green transition timing.
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Emma Kroell and Mogens Steffensen published an academic paper, which constructs a stock price model with jump processes for scenarios with uncertain green transition timing, derives the optimal portfolio solution for investors under ambiguity aversion, and provides a verification theorem. This study solves the problem by splitting it into two stages: before and after the transition. Logarithmic utility, ambiguity neutrality, and worst-case problems are all special cases of this general problem. The case shows that when green and brown stock prices are positively correlated, investors aware of transition risks will increase holdings of green stocks and reduce holdings of brown stocks.
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- arXiv q-finOptimal Portfolio Selection under Timing Risk of the Green Transition
This study addresses scenarios with uncertain timing of the green transition by constructing a stock price model with jump processes, deriving optimal portfolio solutions for ambiguity-averse investors, and providing a verification theorem. The problem is split into pre- and post-transition stages for solving, with logarithmic utility, ambiguity-neutral, and worst-case problems all being special cases of this general framework. Empirical results show that when green and brown stock prices are positively correlated, investors aware of transition risk increase their holdings of green stocks and reduce holdings of brown stocks.
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