We argue that sovereign debt sustainability analysis must be augmented by stochastic correlated risk factors and a risk measure to capture tail effects. Crisis situations can thus be adequately specified and analyzed with sufficient accuracy to warrant the relevance of policy decisions. In this context there is significant scope for optimization modeling for both strategic planning and operational management. We discuss diverse aspects of the problem of debt sustainability and highlight modeling approaches that can be brought to bear on the problem. Results with the fictitious, but nor unrealistic, Kingdom of Atlantis, which is sinking under excessive debt, illustrate the proposed models.

Consiglio, A., & Zenios, S. (2017). Stochastic debt sustainability analysis for sovereigns and the scope for optimization modeling. OPTIMIZATION AND ENGINEERING, 18(2), 537-558 [10.1007/s11081-017-9360-7].

Stochastic debt sustainability analysis for sovereigns and the scope for optimization modeling

CONSIGLIO, Andrea;
2017

Abstract

We argue that sovereign debt sustainability analysis must be augmented by stochastic correlated risk factors and a risk measure to capture tail effects. Crisis situations can thus be adequately specified and analyzed with sufficient accuracy to warrant the relevance of policy decisions. In this context there is significant scope for optimization modeling for both strategic planning and operational management. We discuss diverse aspects of the problem of debt sustainability and highlight modeling approaches that can be brought to bear on the problem. Results with the fictitious, but nor unrealistic, Kingdom of Atlantis, which is sinking under excessive debt, illustrate the proposed models.
Settore SECS-S/06 -Metodi Mat. dell'Economia e d. Scienze Attuariali e Finanz.
Consiglio, A., & Zenios, S. (2017). Stochastic debt sustainability analysis for sovereigns and the scope for optimization modeling. OPTIMIZATION AND ENGINEERING, 18(2), 537-558 [10.1007/s11081-017-9360-7].
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10447/243631
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