Optimal ecological transition path of a credit portfolio distribution, based on Multidate Monge-Kantorovich formulation

Emmanuel Gobet (1) , Clara Lage (1)

1 CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique

Accounting for climate transition risks is one of the most important challenges in the transition to a low-carbon economy. Banks are encouraged to align their investment portfolios to CO2 trajectories fixed by international agreements, showing the necessity of a quantitative methodology to implement it. We propose a mathematical formulation for this problem and a multistage optimization criterion for a transition between the current bank portfolio and a target one. The optimization Problem combines the Monge-Kantorovich formulation of optimal transport, for which the cost is defined according to the financial context, and a credit risk measure. We show that the problem is well-posed, and can be embedded into a saddle-point problem for which Primal-Dual algorithms can be used. We design a numerical scheme that is able to solve the problem in available time, with nice scalability properties according to the number of decision times; its numerical convergence is analysed. Last we test the model using real financial data, illustrating that the optimal portfolio alignment may differ from the naive interpolation between the initial portfolio and the target.

Mots clés: Primal-Dual algorithm; Optimal transport; Environmental economics; Credit risk

Domaines: Probabilités [math.PR]; Applications [stat.AP]

Emmanuel Gobet, Clara Lage. Optimal ecological transition path of a credit portfolio distribution, based on Multidate Monge-Kantorovich formulation. Annals of Operations Research, 2023, ⟨10.1007/s10479-023-05385-4⟩. ⟨hal-03423114v2⟩