A MULTISTAGE DECISION MODEL FOR THE OPTIMAL ISSUANCE OF SOVEREIGN DEBT UNDER ESA95

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Abstract

The aim of this paper is to develop a stochastic programmingmodel for the optimal composition of debt portfolios. Such a prob-lem has recently acquired a more and more major interest, being theindebtedness of many countries quite worrying.We propose a stochastic programming model where the decisionmaker desires to minimize a certain cost function while bounding theinterest rate risk. Our analysis focus mainly on the cost functionESA95, which is a methodology developed by the European Systemof Accounts to gauge the cost of servicing the debt.The model is implemented under two financing strategies, one as-sumes the government cannot resort to budget surplus to pay interestexpenses, and the other one the interest expenses are repaid entirely bybudget surplus. We show results about these two financing strategiesand compare the results.We conclude the paper by substituting the cost function ESA95with the market value of all the not expired debt and showing theresults of this modified model.
Lingua originaleEnglish
Titolo della pubblicazione ospiteAnnali della Facoltà di Economia
Pagine91-115
Numero di pagine25
Stato di pubblicazionePublished - 2014

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Debt
Decision model
Sovereign debt
Costs
Cost function
Surplus
Financing strategy
Financing
Servicing
Resorts
Expenses
Methodology
Stochastic programming
Market value
Government
Decision maker

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title = "A MULTISTAGE DECISION MODEL FOR THE OPTIMAL ISSUANCE OF SOVEREIGN DEBT UNDER ESA95",
abstract = "The aim of this paper is to develop a stochastic programmingmodel for the optimal composition of debt portfolios. Such a prob-lem has recently acquired a more and more major interest, being theindebtedness of many countries quite worrying.We propose a stochastic programming model where the decisionmaker desires to minimize a certain cost function while bounding theinterest rate risk. Our analysis focus mainly on the cost functionESA95, which is a methodology developed by the European Systemof Accounts to gauge the cost of servicing the debt.The model is implemented under two financing strategies, one as-sumes the government cannot resort to budget surplus to pay interestexpenses, and the other one the interest expenses are repaid entirely bybudget surplus. We show results about these two financing strategiesand compare the results.We conclude the paper by substituting the cost function ESA95with the market value of all the not expired debt and showing theresults of this modified model.",
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T1 - A MULTISTAGE DECISION MODEL FOR THE OPTIMAL ISSUANCE OF SOVEREIGN DEBT UNDER ESA95

AU - Piraino, Salvatore

AU - Pecorella, Antonio

AU - Consiglio, Andrea

PY - 2014

Y1 - 2014

N2 - The aim of this paper is to develop a stochastic programmingmodel for the optimal composition of debt portfolios. Such a prob-lem has recently acquired a more and more major interest, being theindebtedness of many countries quite worrying.We propose a stochastic programming model where the decisionmaker desires to minimize a certain cost function while bounding theinterest rate risk. Our analysis focus mainly on the cost functionESA95, which is a methodology developed by the European Systemof Accounts to gauge the cost of servicing the debt.The model is implemented under two financing strategies, one as-sumes the government cannot resort to budget surplus to pay interestexpenses, and the other one the interest expenses are repaid entirely bybudget surplus. We show results about these two financing strategiesand compare the results.We conclude the paper by substituting the cost function ESA95with the market value of all the not expired debt and showing theresults of this modified model.

AB - The aim of this paper is to develop a stochastic programmingmodel for the optimal composition of debt portfolios. Such a prob-lem has recently acquired a more and more major interest, being theindebtedness of many countries quite worrying.We propose a stochastic programming model where the decisionmaker desires to minimize a certain cost function while bounding theinterest rate risk. Our analysis focus mainly on the cost functionESA95, which is a methodology developed by the European Systemof Accounts to gauge the cost of servicing the debt.The model is implemented under two financing strategies, one as-sumes the government cannot resort to budget surplus to pay interestexpenses, and the other one the interest expenses are repaid entirely bybudget surplus. We show results about these two financing strategiesand compare the results.We conclude the paper by substituting the cost function ESA95with the market value of all the not expired debt and showing theresults of this modified model.

UR - http://hdl.handle.net/10447/104774

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EP - 115

BT - Annali della Facoltà di Economia

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