Public Debt Sustainability and Management in a Compound Option Framework
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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. 10/2
Subject:
Asset management Australia Credit risk Debt management Debt sustainability Economic models Group of Twenty Public debt Public sector Risk management
Frequency:
Monthly
English
Publication Date:
January 1, 2010
ISBN/ISSN:
9781451961676/1018-5941
Stock No:
WPIEA2010002
Format:
Paper
Pages:
30
Please address any questions about this title to publications@imf.org