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Stochastic Control for Optimal Government Debt Management Open Access


Other title
Stochastic control
optimal debt ceiling
optimal currency portfolio
Type of item
Degree grantor
University of Alberta
Author or creator
Huaman Aguilar, Ricardo
Supervisor and department
Cadenillas, Abel (Mathematical and Statistical Sciences)
Examining committee member and department
Watanabe, Masahiro (Finance and Statistical Analysis)
Frei, Chirstoph (Mathematical and Statistical Sciences)
Glasserman, Paul (Columbia Business School, University of Columbia)
Pass, Brendan (Mathematical and Statistical Sciences)
Morck, Randall (Finance and Statistical Analysis)
Melnikov, Alexander (Mathematical and Statistical Sciences)
Schmuland, Byron (Mathematical and Statistical Sciences)
Department of Mathematical and Statistical Sciences
Mathematical Finance
Date accepted
Graduation date
Doctor of Philosophy
Degree level
We develop stochastic control models for optimal government policies. We study three problems: (1) the optimal debt ceiling, (2) the optimal currency portfolio, and (3) the optimal management of the stabilization funds. The results of this research provide insights that are useful to policy-makers. For the first problem we present theoretical models for a government that wants to control its debt by imposing a ceiling on its debt-to-GDP ratio. We find explicit solutions for the optimal debt ceiling and we derive a practical recommendation for debt policy based on it. In the second problem we study the optimal currency portfolio and debt payments in a model that considers debt aversion and jumps in the exchange rates. We find that higher debt aversion and jumps in the exchange rates lead to a lower proportion of optimal debt in foreign currencies. In addition, we show that for a government with extreme debt aversion it is optimal not to issue debt in foreign currencies. In the last problem we consider a government that wants to control the stabilization fund by depositing money in and withdrawing money from the fund. We obtain explicit solutions for the optimal bands. Furthermore, we derive a practical recommendation for the management of the stabilization fund based on the optimal bands.
Permission is hereby granted to the University of Alberta Libraries to reproduce single copies of this thesis and to lend or sell such copies for private, scholarly or scientific research purposes only. The author reserves all other publication and other rights in association with the copyright in the thesis and, except as herein before provided, neither the thesis nor any substantial portion thereof may be printed or otherwise reproduced in any material form whatsoever without the author's prior written permission.
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