BFS 2002

Contributed Talk

Environment and Finance

Wojciech Szatzschneider, Monique Jeanblanc

This study represents a proposal to create financial markets out of environmental improvements.We shall explain how to do it,and why the financial approach is the only one able to stop and invert the environmental degradation. We shall concentrate our attention in deforestation and show how to produce effectively reforestation.As a model of actual and future (after applying our approach) situation we consider X(t),0-th dimensional sqared Bessel process with drift.We justify our choice.To put the project into practice funds are needed, but contrary to an infinity of failed projects the use of resources would be apolitical,transparent and efficient.In the game of reforestation versus deforestation we formulate agents optimization problem of the first move needed to start the project,and the global optimization problem.On the other hand, because we aim for the creation of a developed market,we also solve the classical Merton problem with underlying asset X(t).