# Statistical analysis and stochastic interest rate modeling for valuing the future with implications in climate change mitigation

@article{Perello2019StatisticalAA, title={Statistical analysis and stochastic interest rate modeling for valuing the future with implications in climate change mitigation}, author={Josep Perell'o and Miquel Montero and Jaume Masoliver and J. Doyne Farmer and John Geanakoplos}, journal={arXiv: Mathematical Finance}, year={2019} }

High future discounting rates favor inaction on present expending while lower rates advise for a more immediate political action. A possible approach to this key issue in global economy is to take historical time series for nominal interest rates and inflation, and to construct then real interest rates and finally obtaining the resulting discount rate according to a specific stochastic model. Extended periods of negative real interest rates, in which inflation dominates over nominal rates, are…

## 3 Citations

Interest Rate Modelling in the Presence of Discontinuities and its Sensitivities

- Geology
- 2021

Abstract Interest rate paths experience discontinuities in the presence of certain factors. Much of the work on interest rate modelling has no consideration for effects of such unexpected occurrences…

Jump-Diffusion Models for Valuing the Future: Discounting Under Extreme Situations

- Economics
- 2021

We develop the process of discounting when underlying rates follow a jump-diffusion process, that is, when, in addition to diffusive behavior, rates suffer a series of finite discontinuities located…

Jump-Diffusion Models for Valuing the Future: Discounting under Extreme Situations

- MathematicsMathematics
- 2021

We develop the process of discounting when underlying rates follow a jump-diffusion process, that is, when, in addition to diffusive behavior, rates suffer a series of finite discontinuities located…

## References

SHOWING 1-10 OF 97 REFERENCES

Declining discount rates and the Fisher Effect: inflated past, discounted future?

- Economics
- 2013

Uncertain and persistent real interest rates underpin one argument for using a declining term structure of social discount rates in the Expected Net Present Value (ENPV) framework. Despite being…

Discounting the distant future: What do historical bond prices imply about the long term discount rate?

- Economics
- 2017

We use the theory of bond pricing to study the long term discount rate. Century-long historical records of 3 month bonds, 10 year bonds, and inflation allow us to estimate real interest rates for the…

How Should Benefits and Costs Be Discounted in an Intergenerational Context?

- Economics
- 2012

Should governments, in discounting the future benefits and costs of public projects, use a discount rate that declines over time? The argument for a declining discount rate is a simple one: if the…

Value of the future: Discounting in random environments.

- Economics, MedicinePhysical review. E, Statistical, nonlinear, and soft matter physics
- 2015

It is shown that historical average interest rates overestimate long-run discount rates and that this effect can be large.

Social Discounting Under Uncertainty: A Cross-Country Comparison

- 2006

Recent research suggests that social cost-benefit analysis should be con ducted with a declining discount rate. For instance, Newell and Pizer [23] show that the U.S. certainty-equivalent discount…

Declining Discount Rates: Economic Justifications and Implications for Long-Run Policy

- Economics
- 2008

Should economic policy target immediate problems like malaria and AIDS? Or should it target climate change, which may have even more dramatic life-threatening effects in the very long term? We…

How Should Benefits and Costs Be Discounted in an Intergenerational Context? The Views of an Expert Panel

- Economics
- 2013

In September 2011, the US Environmental Protection Agency asked 12 economists how the benefits and costs of regulations should be discounted for projects that affect future generations. This paper…

Discounting the distant future: How much does model selection affect the certainty equivalent rate?

- Economics
- 2007

Recent work in evaluating investments with long-term consequences has turned towards establishing a schedule of Declining Discount Rates (DDRs). Using US data we show that the employment of models…

Probability distribution of returns in the exponential Ornstein-Uhlenbeck model

- Mathematics, Economics
- 2008

We analyze the problem of the analytical characterization of the probability distribution of financial returns in the exponential Ornstein-Uhlenbeck model with stochastic volatility. In this model…