COST-AT-RISK AND BENCHMARK GOVERNMENT DEBT PORTFOLIO IN KOREA

Joon-Ho Hahm and Jinho Kim

International Economic Journal, 2001, vol. 17, issue 2, 79-103

Abstract: This paper provides a framework to identify and achieve a benchmark portfolio structure for government debt based upon the trade-off between expected debt-service-cost and risk. Using actual Korean government debt data, we empirically derive a medium-term efficient frontier conditional upon the existing portfolio structure. In addition, a target benchmark portfolio is identified from the efficient frontier by employing a penalty function with cost-at-risk and duration gap as two penalty factors. The target portfolio identified above also implies an optimal borrowing policy as to the maturity mix of the government bond issuance. [H6, G1, F3]

Date: 2001
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DOI: 10.1080/10168730300080014

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