Scenario Generation Methods for Public Debt Management

Massimo Bernaschi (), Marco Papi and Davide Vergni
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Massimo Bernaschi: Institute for Applied Computing Italian National Research Council
Marco Papi: CNR
Davide Vergni: CNR

No 273, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: We describe the methods we employ for the generation of possible scenarios of the term structure evolution. The problem is originated by the request of the Italian Ministry of Economy and Finance of finding an optimal strategy for the issuance of Public Debt securities. The basic idea is to split the evolution of each rate in 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. Currently we employ a simplified model in which the decisions of the ECB are influenced only by the inflation level but we are working on a more realistic model in which a Taylor's rule can be applied. As to the simulation of the fluctuations of the different maturities, we resort to a multivariate extension of the classic CIR model.

Keywords: public debt management; interest rates; inflation (search for similar items in EconPapers)
Date: 2006-07-04
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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:273

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