Life insurance policyholder protection, government green subsidy, and cap-and-trade transactions in a black swan environment

Previous research has examined the cap-and-trade mechanism with carbon emission reduction for productive firms. This paper encompasses the earlier studies by integrating borrowing firms (productive firms) conducting cap-and-trade transactions with life insurer lending decisions in a black swan environment. Our research pro-vides the first cap call option model to describe the insurer-borrowing firm situation. In particular, we find that a black swan event stimulates life insurance businesses. The cap-and-trade scheme increases the guaranteed rate of the life insurance policy and policyholder protection. Enhancing the subsidy for the green borrowing firm de-teriorates the policyholder protection in a black swan environment.