A0715
Title: Optimal timing of green technology adoption for climate risk mitigation
Authors: Kun Fan - East China Normal University (China) [presenting]
Abstract: The purpose is to investigate the optimal timing for implementing green technology to mitigate the impact of rising temperatures on a company's consumption, where consumption is modeled as a jump-diffusion process to capture both continuous fluctuations and sudden changes. Rising temperatures negatively affect consumption, prompting the company to invest in green technology to counter these adverse effects. To account for variability in technological advancements, the evolution of technology costs is modeled by a compound Poisson process. The objective is to maximize the company's consumption and determine the optimal investment threshold using dynamic stochastic models related to climate change. The stopping problem is reformulated as a free-boundary problem, and by solving the associated Hamilton-Jacobi-Bellman (HJB) equation, a semi-closed-form solution for the optimal boundary is derived. The optimal timing model is extended for investments in green technology by incorporating insurance coverage, and it examines how the purchase of insurance affects the optimal investment threshold. An application is further explored that considers the induction of insurance, and numerical analysis is provided to demonstrate the influence of various parameters on the optimal strategy, offering practical insights for decision-makers.
