Optimal Strategies for the Issuances of Public Debt Securities

Adamo, M.; Amadori, Anna Lisa; Bernaschi, Massimo; Chioma, Claudia La; Marigo, A.; Piccoli, Benedetto; Sbaraglia, Simone; Uboldi, Adamo; Vergni, Davide; Fabbri, Paola; Iacovoni, Davide; Natale, Francesco Paolo; Scalera, Stefano; Spilotro, Lucia; Valletta, Antonella

doi:10.1142/s0219024904002700

Cited by 18 publications

(10 citation statements)

References 4 publications

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“…On the supply side (i.e., for a sovereign issuance problem), a linear programming based model is presented in Adamo et al (2004) for minimization of the total cost of issuance under regulatory constraints. This model is illustrated using debt issuance data of the Italian government.…”

Section: The Debt Management Problemmentioning

confidence: 99%

A mixed integer linear programming model for optimal sovereign debt issuance

Date

Canepa

Abdel-Jawad

2011

European Journal of Operational Research

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Governments borrow funds to finance the excess of cash payments or interest payments over receipts, usually by issuing fixed income debt and index-linked debt. The goal of this work is to propose a stochastic optimization-based approach to determine the composition of the portfolio issued over a series of government auctions for the fixed income debt, to minimize the cost of servicing debt while controlling risk and maintaining market liquidity. We show that this debt issuance problem can be modeled as a mixed integer linear programming problem with a receding horizon. The stochastic model for the interest rates is calibrated using a Kalman filter and the future interest rates are represented using a recombining trinomial lattice for the purpose of scenario-based optimization. The use of a latent factor interest rate model and a recombining lattice provides us with a realistic, yet very tractable scenario generator and allows us to do a multi-stage stochastic optimization involving integer variables on an ordinary desktop in a matter of seconds. This, in turn, facilitates frequent re-calibration of the interest rate model and re-optimization of the issuance throughout the budgetary year allows us to respond to the changes in the interest rate environment. We successfully demonstrate the utility of our approach by out-of-sample back-testing on the UK debt issuance data.

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Section: The Debt Management Problemmentioning

confidence: 99%

A mixed integer linear programming model for optimal sovereign debt issuance

Date

Canepa

Abdel-Jawad

2011

European Journal of Operational Research

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“…That is the reason why we need to generate scenarios of future interest rates. Adamo et al (2004) show that, for a set of term structure evolutions and Primary Budget Surplus (PBS) realizations, such an optimization problem can be formulated as a linear programming problem with linear constraints.…”

Section: Problem Description and Basic Guidelinesmentioning

confidence: 99%

“…The Public Debt Management Division of the Italian Ministry of Economy decided to establish a partnership with the Institute for Applied Computing in order to examine this problem from a quantitative viewpoint. The goal is to determine the composition of the portfolio issued every month that minimizes a predefined objective function (Adamo et al 2004), which can be described as an optimal combination between cost and risk of the public debt service.…”

Section: Introductionmentioning

confidence: 99%

Scenario-generation methods for an optimal public debt strategy

Bernaschi

Briani

Papi

et al. 2007

Quantitative Finance

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We describe the methods employed for the generation of possible scenarios for term structure evolution. The problem originated as a request from the Italian Ministry of Economy and Finance to find an optimal strategy for the issuance of Public Debt securities. The basic idea is to split the evolution of each rate into two parts. The first component is driven by the evolution of the official rate (the European Central Bank official rate in the present case). The second component of each rate is represented by the fluctuations having null correlation with the ECB rate.Public debt strategy, Scenario-generation methods,

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“…In a previous paper Adamo et al (2004) describe a control problem to determine the optimal issuance which minimize the ESA95 1 cost function. Given the complexity of the problem, the authors determine a solution to the control problem for each scenario of interest rate.…”

Section: Introductionmentioning

confidence: 99%

A stochastic programming model for the optimal issuance of government bonds

Consiglio

Staino

2010

Ann Oper Res

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Sovereign states issue fixed and floating securities to fund their public debt. The value of such portfolios strongly depends on the fluctuations of the term structure of interest rates. This is a typical example of planning under uncertainty, where decisions have to be taken on the base of the key stochastic economic factors underneath the model.We propose a multistage stochastic programming model to select portfolios of bonds, where the aim of the decision maker is to minimize the cost of the decision process. At the same time, we bound the conditional Value-at-Risk, a measure of risk which accounts for the losses of the tail distribution. We build an efficient frontier to trade-off the optimal cost versus the conditional Value-at-Risk and analyze the results obtained.

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Optimal Strategies for the Issuances of Public Debt Securities

Cited by 18 publications

References 4 publications

A mixed integer linear programming model for optimal sovereign debt issuance

A mixed integer linear programming model for optimal sovereign debt issuance

Scenario-generation methods for an optimal public debt strategy

A stochastic programming model for the optimal issuance of government bonds

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