Ecole Polytechnique: Climate change at the heart of financial risks

Since 1997, the Rare-Event Simulation Workshop (RESIM) has been an interdisciplinary event bringing together experts in rare event simulation theory and applications. With more than 150 participants from 22 different countries from Europe, America and Africa, the 13th edition of RESIM in May 2021 addressed stress testing in finance, uncertainty quantification and environmental risks.

Rare climatic events and their impacts were the main issues discussed during the round table supported by the “Stress Test” Chair held by Emmanuel Gobet, researcher at the Centre for Applied Mathematics (CMAP*) at RESIM 2021. It brought together different expertises and points of view with speakers coming from consulting, industry and research in finance and insurance, meteorology, mechanical engineering and complex systems.

This interdisciplinarity is necessary to understand the problems posed by climate change. The core of the Chair, the stress test, is the quantification of the resilience of banking systems to different rare events. Until now, work on climate risks has been carried out solely in economics or physics, and very often without dialogue between disciplines. Coordination is imperative to analyse and build physical, economic and statistical models that go beyond the expertise of these research fields taken separately.

Emmanuel Gobet also points out that “our climate change impact metrics are not necessarily the right ones: damage to property is anticipated, but not damage to the environment and the population, because it is less quantifiable. When we experience heat waves at 45°C, the damage to property will be low, but the human dimensions must not be lost sight of.

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