Pricing Biodiversity Risk Under Measurement Heterogeneity: A Continuous-Time Framework for Financial Markets

Pricing Biodiversity Risk Under Measurement Heterogeneity: A Continuous-Time Framework for Financial Markets | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Pricing Biodiversity Risk Under Measurement Heterogeneity: A Continuous-Time Framework for Financial Markets Richard McKinney This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8759911/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract We develop a continuous-time framework for pricing biodiversity risk under measurement ambiguity—uncertainty about how ecosystem states map to cash flows. Unlike climate risk with its CO₂ metric, biodiversity creates a distinct priced channel within smooth ambiguity preferences. While absolute premia depend on unobservable parameters, cross-sectional rankings exhibit Spearman ρS > 0.97 across parameterizations. We prove impossibility of scalar aggregation under CES complementarity and demonstrate super-additive premia from climate-biodiversity interaction. Results enable portfolio tilts without precise calibration. Finance Biodiversity finance measurement ambiguity smooth ambiguity preferences ecosystem services continuous-time asset pricing TNFD natural capital Full Text Additional Declarations The authors declare no competing interests. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-8759911","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":583986841,"identity":"2f883751-8535-48c9-891f-3f6ac3e4747c","order_by":0,"name":"Richard McKinney","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA4UlEQVRIiWNgGAWjYDACZgY2MMnAw9gA4suRrsWYGHtgWiC8xAZC6s3bmZ89+LnHOpq/53Db44KKw+nbxQ6wbviAR4vMYTZzw55n6bkzzja2G884czh35+wEtpsz8GiRYOZhk+A5cDh3Az9jmzRvG5BxO4HtNg8BLZJ/4Fr+HU43AGn5Q0CLNNgW3kaglobDCWAt+LwvwcxmJi1zAOiXMwfbpHmOpRvunJ3YdrMHnxb+w88k3xywzu3vSX8mzVNjLW8unXzsxg981qCBZgYDBkicEg3qgFpGwSgYBaNgFKACAJsVTHamMPE9AAAAAElFTkSuQmCC","orcid":"https://orcid.org/0009-0007-1386-6881","institution":"University of Oxford","correspondingAuthor":true,"prefix":"","firstName":"Richard","middleName":"","lastName":"McKinney","suffix":""}],"badges":[],"createdAt":"2026-02-02 03:12:02","currentVersionCode":1,"declarations":{"humanSubjects":false,"vertebrateSubjects":false,"conflictsOfInterestStatement":false,"humanSubjectEthicalGuidelines":false,"humanSubjectConsent":false,"humanSubjectClinicalTrial":false,"humanSubjectCaseReport":false,"vertebrateSubjectEthicalGuidelines":false},"doi":"10.21203/rs.3.rs-8759911/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-8759911/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":101749644,"identity":"4784a2a1-77f2-49da-aa0d-f103ba16d439","added_by":"auto","created_at":"2026-02-03 09:57:48","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":765846,"visible":true,"origin":"","legend":"","description":"","filename":"PricingBiodiversityRiskUnderMeasurementHeterogeneity.pdf","url":"https://assets-eu.researchsquare.com/files/rs-8759911/v1_covered_33dbbb9f-8fb9-45c5-8b51-563b90d7dad4.pdf"}],"financialInterests":"The authors declare no competing interests.","formattedTitle":"\u003cp\u003e\u003cstrong\u003ePricing Biodiversity Risk Under Measurement Heterogeneity: A Continuous-Time Framework for Financial Markets\u003c/strong\u003e\u003c/p\u003e","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Biodiversity finance, measurement ambiguity, smooth ambiguity preferences, ecosystem services, continuous-time asset pricing, TNFD, natural capital","lastPublishedDoi":"10.21203/rs.3.rs-8759911/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-8759911/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eWe develop a continuous-time framework for pricing biodiversity risk under measurement ambiguity\u0026mdash;uncertainty about how ecosystem states map to cash flows. Unlike climate risk with its CO₂ metric, biodiversity creates a distinct priced channel within smooth ambiguity preferences. While absolute premia depend on unobservable parameters, cross-sectional rankings exhibit Spearman ρS\u0026thinsp;\u0026gt;\u0026thinsp;0.97 across parameterizations. We prove impossibility of scalar aggregation under CES complementarity and demonstrate super-additive premia from climate-biodiversity interaction. Results enable portfolio tilts without precise calibration.\u003c/p\u003e","manuscriptTitle":"Pricing Biodiversity Risk Under Measurement Heterogeneity: A Continuous-Time Framework for Financial Markets","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2026-02-03 09:55:02","doi":"10.21203/rs.3.rs-8759911/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"8e895a54-3318-4a04-8d98-029ba49daf03","owner":[],"postedDate":"February 3rd, 2026","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[{"id":62122850,"name":"Finance"}],"tags":[],"updatedAt":"2026-02-03T09:55:02+00:00","versionOfRecord":[],"versionCreatedAt":"2026-02-03 09:55:02","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-8759911","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-8759911","identity":"rs-8759911","version":["v1"]},"buildId":"XKTyCvWXoU3ODBz1xrDgd","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}