Introduction of a New Conceptual Framework for Government Debt Management

With a Special Emphasis on Modeling the Term Structure Dynamics

verfasst von: Anja Hubig

Verlag: Springer Fachmedien Wiesbaden

Buchreihe : Empirische Finanzmarktforschung / Empirical Finance

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

Against the background of the financial-cum-sovereign debt crisis, government debt managers are currently faced by a challenging environment. One key element in that respect is the analysis and forecast of interest rates, which is important for achieving the strategic objective of low borrowing costs. Anja Hubig develops a new mathematical method to estimate the term structure of interest rates, that is adopted to describe the term structure dynamics within a stochastic setting. The introduced model is capable to capture the complex behavior of the entire yield curve with a reduced set of parameters. It essentially ensures a comprehensive analysis of the costs and risks associated with individual funding strategies, and thus effectively supports the selection of a long-term optimal debt portfolio composition.

Inhaltsverzeichnis

Frontmatter

1. Introduction

Abstract

Against the background of the financial-cum-sovereign debt crisis¹, government debt managers are currently faced by a challenging environment characterized by serious fiscal vulnerabilities combined with accelerating debt levels.

Anja Hubig

2. Is the standard micro portfolio approach to sovereign debt management still appropriate? A critical analysis of the underlying analytical framework

Abstract

There is a consensus among OECD debt managers that the primary strategic objectives or functions of government debt management are⁶³: (a) securing continuous (and easy) access to markets, while (b) minimizing longer-term borrowing costs at an acceptable level of risk. These strategic cost-risk objectives constitute the basis of the so-called standard micro portfolio approach to public debt management (PDM).

Anja Hubig

3. From corporate to public finance: A new application of the capital budgeting approach to sovereign debt management

Abstract

Government debt managers are currently confronted with rapidly changing conditions. New and complex interactions between public debt management (PDM), monetary and fiscal policy as well as financial stability in the face of serious fiscal vulnerabilities, a rapid increase in sovereign risk and considerable uncertainty about future interest rates (denoted as fiscal dominance in Turner [2011, pp. 7 f.] and Blommestein and Turner [2012, p. 6]), may require a reassessment of the existing PDM framework.

Anja Hubig

4. Use of orthogonal polynomials to describe the shape and dynamics of the term structure of interest rates for the purpose of government debt management

Abstract

Long-term debt management requires modeling the state’s future interest cost distribution and its evolution over time. Although the last 30 years have seen major progress in modeling interest rate processes using stochastic term structure models, comparatively little attention has been paid to the evolution of the whole zero-coupon yield curve¹⁸⁵ over a medium-to-long term horizon.

Anja Hubig

5. Stochastic modeling of the term structure dynamics for the purpose of long-term government debt management: The theoretical framework

Abstract

Long-term government debt management aims to achieve the lowest possible long-term borrowing costs with an acceptable level of risk.²²² For this purpose, different financing strategies are evaluated in terms of expected costs and risks to identify a financing strategy, which leads to a cost-risk optimal long-term portfolio structure.

Anja Hubig

6. Joint modeling of yield curve shape and dynamics: An empirical validation of term structure simulations for long-term government debt management

Abstract

The success of the debt management strategy to achieve the lowest possible long-term borrowing costs is largely determined by the evolution of the term structure of interest rates over the respective horizon. That is why we regard the postulated dynamics as a key factor in the optimization process. The current environment characterized by high uncertainty about future interest rates²⁷² poses substantial challenges for debt managers to model the development of the yield curve.

Anja Hubig

Backmatter

Titel: Introduction of a New Conceptual Framework for Government Debt Management
verfasst von: Anja Hubig
Verlag: Springer Fachmedien Wiesbaden
Electronic ISBN: 978-3-658-00918-2
Print ISBN: 978-3-658-00917-5
DOI: https://doi.org/10.1007/978-3-658-00918-2