Credit and market risks measurement in carbon financing for Chinese banks

This paper concerns the risk analysis of six Chinese banks which are involved in carbon financing. Factor copula is introduced to simulate the corresponding carbon finance credit risk and market risk by latent variables in an indirect method. In short, the four common factors in carbon financing – exchange rates, interest rates, CER price, and Brent oil prices – are analyzed and explored in factor copula approach that incorporates KMV, GARCH...