Public Debt Sustainability and Management in a Compound Option Framework
Electronic Access:
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Summary:
This paper introduces the Asset and Liability Management (ALM) compound option model. The model builds on the observation that the public sector net worth in a multi-period setting corresponds to the value of an option on an option on total government assets. Hence, the ALM compound option model is better suited for analyzing and evaluating the risk profile of public debt than existing one-period models, and is especially useful for analyzing the soundness of exit strategies from the large fiscal expansions undertaken by G-20 countries in the wake of the recent financial crisis. As an illustration, the model is used to analyze the risk profile and sustainability of Australia's public debt under different policies.
Series:
Working Paper No. 2010/002
Subject:
Asset and liability management Financial institutions Financial statements Government debt management Government securities Public debt Public financial management (PFM)
Frequency:
Monthly
English
Publication Date:
January 1, 2010
ISBN/ISSN:
9781451961676/1018-5941
Stock No:
WPIEA2010002
Pages:
30
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