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Managing Climate Risk in Mortgage Markets: A Role for Derivatives

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Abstract

The world’s communities and economies are already feeling significant effects from global warming and related climate and extreme weather events, as the latest United Nations Intergovernmental Panel on Climate Change (IPCC) world climate report published in August 2021 makes clear. In some industry sectors, such as insurance and energy, financial market tools have been developed specifically to mitigate the risk of financial loss related to climate. Such tools have yet to be developed for the U.S. mortgage market—one of the world’s largest at roughly $11 trillion as of the end of 2020.

Suggested Citation

  • Ketan B. Patel, 2021. "Managing Climate Risk in Mortgage Markets: A Role for Derivatives," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue 462, pages 1-6, October.
    • Handle: RePEc:fip:fedhle:93407
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    File URL: https://www.chicagofed.org/-/media/publications/chicago-fed-letter/2021/cfl462-pdf.pdf?sc_lang=en
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    Cited by:

    1. Michael C. S. Wong & Ho Ming Ho, 2023. "A Framework for Integrating Extreme Weather Risk, Probability of Default, and Loss Given Default for Residential Mortgage Loans," Sustainability, MDPI, vol. 15(15), pages 1, August.

    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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