Davide Stocco (PostDoc at CREST - ENSAE, Institut Polytechnique de Paris)
TITLE: Asset management with an ESG mandate

ABSTRACT
We investigate the portfolio frontier and risk premia in equilibrium when institutional investors aim to minimize the tracking error variance under an ESG score mandate. If a negative ESG premium is priced in the market, this mandate can reduce portfolio inefficiency when the return over-performance target is limited. In equilibrium, with asset managers endowed with an ESG mandate and mean-variance investors, a negative ESG premium arises. A result that is supported by empirical data. The negative ESG premium is due to the ESG constraint imposed on institutional investors and is not associated with a risk factor.
 

Michele Azzone (Assistant Professor at Department of Mathematics, Politecnico of Milan)
TITLE: Overcoming misconceptions about local volatility: Exact prices lead to sound continuous Markovian models
 

ABSTRACT
Local volatility models are by and large seen as insufficient for handling the many nuances of modern derivative markets. While the sub-optimality of their empirical performance in the financial practice is well-document, this criticism often extends to presumed intrinsic mathematical limitations of such models.
We introduce what to our knowledge is the first ever local volatility model with identifiable marginal distributions, leading to analytical option pricing formulae,  as well as explicit implied and local volatility asymptotics.  The peculiarity of the local volatility SDE we discuss is that the diffusion coefficient is both unbounded and not uniformly Lipschitz on the half space. We prove weak existence, uniqueness in law, and the Markov and martingale properties for the  solution.  As a consequence, the proposed model does not suffer from the common structural drawbacks commonly attributed to the local volatility model class and is fully viable for industrial uses in option markets.