Calculating Climate VaR for Bonds Portfolio

Problem Statement

The client needed to simulate bond portfolio adjustments based on climate risk vulnerability to identify the sectors most susceptible to climate risks.

Solution Approach

Solytics conducted a detailed analysis:

Computing climate risk for each sector and adjusting the portfolio.
Performing simulations of IG bond and IG bond with climate risk portfolios.
Optimizing the climate portfolio to have the same risk as the reference portfolio.
Comparing optimized climate risks and performing stress tests.
Providing detailed insights into climate-related vulnerabilities.

Client Impact

Improved understanding of climate-related vulnerabilities in bond portfolios.
Enhanced risk management and mitigation strategies.
Provided actionable data for portfolio adjustment and optimization.

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