Consistent equity risk-neutral valuation under climate stress tests

The effects of climate change have become more noticeable, and notably impact economic activity. Economic scenarios representing the future possible states of economies are at the core of the regulatory calculations performed by insurance companies. This paper proposes a methodology for simulating proper risk-neutral scenarios used to perform best-estimate calculations that integrate some climate transition risk, analyzing their impact on a virtual insurer's balance sheet. The paper is organized as follows: 

• Equity paths and sector-based indices: settings
• Performing the simulations
• Asset-liability-management (ALM) modeling
• Results