Franck Moraux

Global warming affects the payout policy of heat-sensitive firms by shortening their economic lifetime, thereby reducing the option value of retained cash and inducing earlier dividend distributions. A firm-specific heat-tolerance threshold determines when business activity ceases, translating the projected temperature trajectory into a finite operating horizon, and yielding a finite-horizon, time-inhomogeneous version of the classical De Finetti dividend problem. We characterize the optimal dividend policy analytically and complement the analysis with numerical solutions of the associated HJB quasi-variational inequality. The optimal dividend barrier declines over time and converges to zero as climate-induced business termination approaches, reflecting the progressive loss of the option value of retained cash. The barrier increases with business risk and decreases with the discount rate, while its response to expected cash-flow growth is non-monotonic. We also analyze a one-time irreversible adaptation investment, showing that adaptation may be value-enhancing and that an optimal adaptation effort exists under mild cost conditions. Finally, extending the model to stochastic temperature dynamics shows that the declining dividend barrier is not an artifact of deterministic warming trajectories. Unlike in the deterministic model, firms may optimally retain positive cash reserves for distribution at climate-induced business termination.

Empirical studies report inconclusive assessment of duration‐based immunization, notably showing that more sophisticated strategies do not outperform immunization relying on Macaulay duration. This article provides a mean–variance framework to explain this puzzle. We characterize the efficient portfolio allocations for a stylized barbell strategy trading off reinvestment risk with discounting risk. We show, in a model‐free setting, that barbell allocations form a convex set in the mean–variance space, and the endpoints of the efficient frontier can switch as time passes, reversing the set of efficient allocations. Consequently, duration‐based immunization, which is not minimum variance, can exhibit temporary inefficiency. This result is numerically illustrated in a one‐factor Gaussian and a two‐factor non‐Gaussian model. Using yield curve scenarios resampled from U.S. data over the 1977–2020 period, we further corroborate our conclusions non‐parametrically, and find that duration‐based immunization is sometimes inefficient.

We examine the impact of climate change on the pricing of corporate securities and on the capital structure of firms. The main transmission channel through which global warming has an impact is the stranding of assets upon liquidation. The predictions of our model are consistent with recent empirical evidence. Global warming has a profound impact on debt capacity and the optimal capital structure. We are the first to document a possible disciplinary effect. The higher the exposure, the lower the leverage, which interestingly does not necessarily lead to lower credit spreads. We disentangle the direct and indirect effects of global warming on credit risk management metrics and show how these effects complement each other and which effects dominate and when.

This paper analyzes immunization strategies in the mean-variance framework. We characterize the efficient portfolio allocations and identify the minimum variance immunization strategy. We show that the efficient allocations can be superior or inferior to the minimum variance allocation as time passes. Consequently, the efficiency of duration-based (Macaulay or stochastic) immunization strategies can be transient, which helps explain their mitigated performance documented in empirical studies. The minimum variance immunization strategy, characterized explicitly in the Vasicek model, appears robust to real yield curve fluctuations extrapolated from U.S. data from 1977 to 2020.

This paper extends the contingent claims analysis of Black-Scholes-Merton-Cox to account for the existence of a court-supervised bankruptcy procedure that is exclusively based on the time spent by the firm in distress. I provide some distribution-free results and analytical formulae that are very useful for pricing corporate securities. I highlight a number of price effects of the bankruptcy procedure and show, for instance, that the credit spreads can decrease or increase with respect to the grace delay depending on the subordination feature of the corporate debt. Senior creditors should in turn worry about the effective enforceability of their safety covenant. Numerical experiments suggest that any effort to reinforce a safety covenant ex ante may be swept quite easily by a grace delay granted by a Court ex post. Finally, I discuss the portfolio management of corporate securities when portfolios are internationally diversified and I show how a portfolio manager can extend the initial one-country setting to a multi-country setting with different bankruptcy codes.