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Governmental incentives for green bonds investment

Author

Listed:
  • Bastien Baldacci

    (Quantitative Advisory Solutions)

  • Dylan Possamaï

    (ETH Zürich)

Abstract

Motivated by the recent studies on the green bond market, we build a Principal–Agent model in which an investor trades on a portfolio of green and conventional bonds, both issued by the same governmental entity. The government provides incentives to the bondholder in order to increase the amount invested in green bonds. These incentives are, optimally, indexed on the prices of the bonds, their quadratic variation and covariation. We show numerically on a set of French governmental bonds that our methodology outperforms the current tax-incentives systems in terms of green investments. Moreover, it is robust to model specification for bond prices and can be applied to a large portfolio of bonds using classical optimisation methods.

Suggested Citation

  • Bastien Baldacci & Dylan Possamaï, 2022. "Governmental incentives for green bonds investment," Mathematics and Financial Economics, Springer, volume 16, number 5, October.
    • Handle: RePEc:spr:mathfi:v:16:y:2022:i:3:d:10.1007_s11579-022-00320-w
    DOI: 10.1007/s11579-022-00320-w
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lu, Juan & Li, He & Yang, Ran, 2024. "Low carbon finance drives corporate carbon emissions reduction: A perspective from issuing carbon neutral bonds," Technological Forecasting and Social Change, Elsevier, vol. 203(C).
    2. Alessandro Chiusolo & Emma Hubert, 2024. "A new approach to principal-agent problems with volatility control," Papers 2407.09471, arXiv.org.
    3. Leping Huang & Yuning Cao & Yingfu Zhu, 2023. "Is there any recovery power for economic growth from green finance? Evidence from OECD member countries," Economic Change and Restructuring, Springer, vol. 56(6), pages 3909-3926, December.
    4. Emma Hubert, 2023. "Continuous-time incentives in hierarchies," Finance and Stochastics, Springer, vol. 27(3), pages 605-661, July.
    5. Shouzhen Zeng & Junfang Hu & Fengjuan Gu & Llopis- Albert Carlos, 2023. "Financial information, green certification, government subsidies and green bond credit spreads–evidence from China," International Entrepreneurship and Management Journal, Springer, vol. 19(1), pages 321-341, March.
    6. Daniel Krv{s}ek & Dylan Possamai, 2023. "Randomisation with moral hazard: a path to existence of optimal contracts," Papers 2311.13278, arXiv.org.
    7. Alberto Gennaro & Thibaut Mastrolia, 2024. "Delegated portfolio management with random default," Papers 2410.13103, arXiv.org.

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