Bachelier’s Market Model for ESG Asset Pricing

Svetlozar Rachev (), Nancy Asare Nyarko, Blessing Omotade and Peter Yegon
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Svetlozar Rachev: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA
Nancy Asare Nyarko: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA
Blessing Omotade: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA
Peter Yegon: Department of Mathematics and Statistics, Texas Tech University, Lubbock, TX 79409-1042, USA

JRFM, 2024, vol. 17, issue 12, 1-23

Abstract: Environmental, Social, and Governance (ESG) finance is a cornerstone of modern finance and investment, as it changes the classical return-risk view of investment by incorporating an additional dimension to investment performance: the ESG score of the investment. We define the ESG price process and include it in an extension of Bachelier’s market model in both discrete and continuous time, enabling option pricing valuation.

Keywords: ESG finance; Bachelier’s market model; Bachelier’s ESG affinity of the financial market; the puzzle in classical binomial option pricing; generalized skew Brownian motion (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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