JOURNAL ARTICLE

Why State-Dependent Discounting Matters for Climate-Sensitive Securities.

  • Published In: Journal of Portfolio Management, 2025, v. 51, n. 4. P. 210 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Rebonato, Riccardo 3 of 3

Abstract

Valuing securities requires projecting expected cashflows and discounting them. We show that accounting for the dependence of the discounting factor on the state of the economy (the "risk premium") is important in the case of climate-sensitive assets. We provide a simplified expression for the state-dependent discount factor that, when applied to bond-like or equity-like cashflows, can recover both the equity risk premium and the level of rates. Our findings can complement traditional discounted cash flow valuation models, in which discounting is at most time dependent but typically not state dependent. [ABSTRACT FROM AUTHOR]

Additional Information

  • Source:Journal of Portfolio Management. 2025/02, Vol. 51, Issue 4, p210
  • Document Type:Article
  • Subject Area:Business and Management
  • Publication Date:2025
  • ISSN:0095-4918
  • DOI:10.3905/jpm.2024.1.655
  • Accession Number:183116716
  • Copyright Statement:Copyright of Journal of Portfolio Management is the property of With Intelligence Limited and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

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