On effects of present-bias on carbon emission patterns towards a net zero target

Battle Count: 80

While not directly about trading strategies, the paper is relevant to quantitative finance through: (1) its use of stochastic control techniques from insurance/dividend theory applicable to portfolio management; (2) modeling of transition risk for carbon-intensive assets; (3) the framework for optimal resource allocation under budget constraints analogous to capital allocation; (4) implications for pricing carbon-intensive securities and derivatives. The mathematical techniques (HJB equations, diffusion processes, equilibrium strategies) are directly transferable to quantitative finance problems.

The analytical framework involves solving systems of second-order ODEs with boundary conditions, computing Wronskians, and determining optimal thresholds through implicit equations. The Brownian motion case has closed-form solutions, but the general diffusion case requires numerical methods for bounded solutions on infinite intervals. The stochastic quasi-hyperbolic discounting adds complexity through the inter-personal game formulation and the need to compute both exponential and quasi-hyperbolic value functions simultaneously. Implementation requires careful handling of boundary conditions and numerical stability.

The paper provides explicit analytical formulas for threshold strategies under both exponential and stochastic quasi-hyperbolic discounting. Numerical parameters are specified (x0=34, sigma=2, delta=0.1, etc.), and the Brownian motion case yields closed-form solutions. However, no code repository is provided, and the general diffusion case requires numerical ODE solving. The mathematical derivations are complete in the appendix, enabling theoretical reproduction.