Expert Says Financial Technologies Can Help Address Climate Change
“Financial technologies offer great promise to tackle climate change and provide pathways for developing sustainable economies and lifestyles,” says Aparna Gupta, a professor of quantitative finance at Rensselaer Polytechnic Institute and co-director of the Center for Research toward Advancing Financial Technologies (CRAFT), the first-ever fintech research center backed by the National Science Foundation. CRAFT brings together industry partners and policy makers to conduct research that is relevant for industry and has potential for commercialization.
Dr. Gupta says that blockchain technologies combined with smart contracts and Internet of Things (IoT) devices are set to transform property and casualty insurance that is subject to increasing threats from climate change. Similarly, distributed ledger technologies can be utilized for issuing innovative climate finance securities, such as green bonds and climate derivatives, by facilitating traceable, transparent, and standardized transactions. Regulatory readiness to support blockchain-enabled green bonds and other climate finance securities issuance is underway across the globe.
Climate fintech is also set to play a pivotal role in increasing renewable power generation and accelerating the transition to clean energy, according to Dr. Gupta.
Digital lending platforms use crowdsourcing models to provide debt financing for residential solar energy systems. Climate-conscious consumers can make spending decisions that minimize their carbon footprint through solutions such as using a credit card that allows them to round up their purchases and use the change for planting trees.
In the investment management and advisory space, there is a growing recognition of the need for environmentally sustainable investing. Responding to this need, fintech startups are offering platforms for clean energy investments and enabling investors to construct low-carbon-impact financial portfolios.
“Financial technologies innovations are poised to transform almost all aspects of financial services, and in doing so, offer great opportunities to address climate change challenges,” Dr. Gupta says.
In addition to her leadership in fintech, Dr. Gupta is at the helm of a team of financial and renewable energy experts developing risk management tools to incorporate renewable energy into the energy market. They will set and standardize risk factors to make it easier for this critical industry to be both productive for investors and creators and systematized for users, similar to the rating system created for the bond market.
Dr. Gupta also serves on the Climate Risk Working Group of the Financial Risk Manager Advisory Committee for the Global Association of Risk Professionals tasked with identifying the important climate issues for the training of future global risk professionals.
Dr. Gupta is among the many experts and researchers at Rensselaer available to speak on this topic.
Areas of Expertise
Quantitative Finance
Risk Management
Financial Engineering
Analytical Methods
Machine Learning
Networked Systems
Biography
Aparna Gupta is a professor of quantitative finance and director of the Center for Financial Studies in the Lally School of Management at Rensselaer Polytechnic Institute. She has been the founding director of the MS program in Quantitative Finance and Risk Analytics at RPI, and holds a joint appointment in industrial and systems engineering in the School of Engineering at RPI.
Dr. Gupta has also been a visiting researcher at US SEC in Washington DC for three years.
Her research interest is in financial decision support, risk management, and financial engineering. She applies mathematical modeling, machine learning and financial engineering techniques for risk management both in technology-enabled network services, such as energy and renewable energy systems, communication systems, and technology-enabled service contracts, as well as risk management in the inter-connected financial institutions and financial markets.
She has worked on several US National Science Foundation, US Department of Energy funded research projects in financial innovations for risk management. Currently, she is working to establish a multi-university multi-disciplinary NSF-funded center for research toward advancing financial technologies (CRAFT).
Dr. Gupta's research has been published in top quantitative finance and operations research journals, and has been awarded various recognitions, including 2018 best paper award of the Financial Management Association and 2019 best conference paper award at the 17th FRAP Conference. She is the author of the book, Risk Management and Simulation. Dr. Gupta is a member of WFA, FMA, INFORMS, GARP and IAQF, and serves on the editorial board of several quantitative finance and analytics journals. She earned her doctorate from Stanford University and her B.Sc. and M.Sc. degrees in Mathematics from the Indian Institute of Technology, Kanpur.
RPI hosting financial technology industry conference
WAMC radio
2022-03-23
In 2021, Rensselaer Polytechnic Institute in Troy, New York and the Stevens Institute of Technology in New Jersey were awarded a National Science Foundation grant to create a research center on financial technology and science. Now the Center for Research toward Advancing Financial Technologies, or CRAFT, is hosting an industry conference at RPI Thursday and Friday to determine what projects to pursue. WAMC's Jim Levulis spoke with Aparna Gupta, the co-director of CRAFT and a professor of quantitative finance at RPI about the gathering.
Finding one's home in academia and creating a plan is not straightforward for anyone, much less for women in academics. Finding homes is particularly hard today when disciplines are evolving and most pressing problems, such as, trusted computing, security threats, climate change, etc. necessitate multi-disciplinary approaches to ensure robust and meaningful solutions. Dearth of women role models to chart one’s path to successes in the academic profession, where disciplinary entrenchment remains deep despite today’s challenges demanding multi-disciplinary solutions, has posed a significant challenge and hurdles in my journey
RPI Part Of New Research Center On Financial Technology
WAMC radio
2021-07-20
Rensselaer Polytechnic Institute in Troy, New York and the Stevens Institute of Technology in New Jersey have been awarded a National Science Foundation grant to create a research center on financial technology and science. The Center for Research toward Advancing Financial Technologies, or CRAFT, is expected to receive $1 million in funding in its first year, with $300,000 from the NSF annually over five years. The rest will be funded by industry members. The aim is expand the center to include more schools, with Albany Law School among those expressing interest. WAMC's Jim Levulis spoke with Aparna Gupta, a professor of quantitative finance at RPI and co-director of CRAFT.
Rensselaer Receives Over 2.6M to Study Renewable Energy
ABC News- News10 Albany tv
2020-04-29
Rensselaer Polytechnic Institute received millions to help integrate renewable energy into New York State’s power grid.
Over $2.6 million in federal funding came from the Department of Energy’s Advanced Research Projects Agency-Energy through their new Performance-based Energy Resource Feedback, Optimization, and Risk Management (PERFORM) program.
Addressing systemic risk using contingent convertible debt – A network analysis
European Journal of Operational Research
Gupta, A., Lu, Y., and Wang, R.
2021-04-01
We construct a balance sheet network model to study the interconnectedness of a banking system. A simulation analysis of the buffer effect of contingent convertible (CoCo) debt in controlling contagion in a theoretical banking network model is followed by calibrating the model using 13F filings. We find that CoCo debt conversion significantly mitigates systemic risk, with a dual-trigger CoCo debt design being more effective in protecting the surviving banks. A two-tranche CoCo debt design combines the benefits of single and dual-trigger CoCo debt. The trade-offs in different designs of CoCo triggers can be evaluated in a network simulation model, as developed in this work.
Risk management of renewable power producers from co-dependencies in cash flows
European Journal of Operational Research
Bhattacharya, S., Gupta, A., Kar K., and Owusu, A.
2020-06-16
Increasing adoption of renewable energy, which is inherently intermittent, poses several business risks for renewable energy producers. We identify the core co-dependencies of electricity demand, temperature and radiation risk exposures of a solar energy producer at different times of the year, which offer a valuable risk mitigation opportunity. By capturing the co-dependencies in a vector autoregressive, multivariate GARCH model, we investigate the extent of natural hedge embedded in the solar energy producer’s cash flows. We further develop the framework to use explicit optimal cross hedging strategies for risk mitigation using temperature-based weather derivatives. We find that there is significant benefit of natural hedge in certain months of the year, while in others, explicit hedges can effectively modify risk exposure.
Filtering for Risk Assessment of Interbank Network
European Journal of Operational Research
Gupta, A., Kar, K., and Simaan, M.
2020-01-01
Our paper contributes to the recent macroprudential policy addressing the resilience of financial systems in terms of their interconnectedness. We argue that beneath an interbank market, there is a fundamental latent network that affects the liquidity distributions among banks. To investigate the interbank market, we propose a framework that identifies such latent network using a statistical learning procedure. The framework reverse engineers overnight signals observed as banks conduct their reserve management on a daily basis. Our simulation-based results show that possible disruptions in funds supply are highly affected by the interconnectedness of the latent network. Hence, the proposed framework serves as an early warning system for regulators to monitor the overnight market and to detect ex-ante possible disruptions based on the inherent network characteristics.
Learning risk culture of banks using news analytics
European Journal of Operational Research
Agarwal, A., Gupta, A., Kumar, A.K., Tamilselvam, S.
2019-09-01
Risk culture is arguably a leading contributor to risk outcomes of a firm. We define risk culture indicators based on unstructured news data to develop a qualitative assessment of risk culture of banks. For US banks participating in an annual stress test program, we conduct a supervised learning ridge regression analysis to identify the most significant features to evaluate banks’ risk culture characteristics. These features are used for unsupervised clustering to determine the high to low quality of risk culture. The distinct groups obtained from clustering define and allow monitoring changes in the quality of risk culture in banks.
A network approach to unravel asset price comovement using minimal dependence structure
Journal of Banking & Finance
de Carvalho, P.J.C., and Gupta, A
2018-06-01
We develop a network representation-based methodology to aid an exploratory analysis of temporally evolving comovement in asset prices. This parsimonious order-n representation of the most significant comovement in asset prices, filtered by common factors, allows tackling a large number of assets and unraveling their complex comovement structure. Flexibility in choosing explanatory factors to suit the specific objectives of a study makes this methodology useful for portfolio analysis, risk parity approaches, and risk management decisions. We illustrate the features of the methodology for a set of major industry equity indices and to blue chip stocks, where we analyze the dynamic relevance of Fama–French factors. Investigating the network for more than 20 years, including the dot-com bust, global financial crisis, and European debt crisis, helps draw many insights. For instance, unexpected industries are seen to connect idiosyncratically through the dot-com bust. We demonstrate that a network factor model based portfolio allocation performs better than a regular factor model based allocation.
Risk assessment based on the analysis of the impact of contagion flow
Journal of Banking & Finance
Edirisinghe, N.C., Gupta, A., and Roth, W.
2015-11-01
This paper presents a new framework to model and calibrate the process of firm value evolution when an unanticipated exogenous event impacting one firm can contagiously affect other firms. The nature of propagation of such contagion is determined by the underlying connections between firms, which can adversely affect the tail risks of firm value, hence the securities issued by the firm. This paper combines the insights gained from the existing firm-value models and historical events into a structural model for flow of contagion among firms using a network-based approach. Rather than using stylized networks, we develop a data-driven approach for network construction where we define and calibrate several contagion variables to model the spread of contagion. This framework is applied for assessing firm-level risk under downside risk measures. Using actual data, our model illustrates how connections between firms can lead to heavy-tailed default distributions and default clustering observed in practice.
