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Stochastic Control for Optimal Government Debt Management

  • Author / Creator
    Huaman Aguilar, Ricardo
  • 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.

  • Subjects / Keywords
  • Graduation date
    2015-11
  • Type of Item
    Thesis
  • Degree
    Doctor of Philosophy
  • DOI
    https://doi.org/10.7939/R3F47H05J
  • License
    This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for non-commercial purposes. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.
  • Language
    English
  • Institution
    University of Alberta
  • Degree level
    Doctoral
  • Department
    • Department of Mathematical and Statistical Sciences
  • Specialization
    • Mathematical Finance
  • Supervisor / co-supervisor and their department(s)
    • Cadenillas, Abel (Mathematical and Statistical Sciences)
  • Examining committee members and their departments
    • Pass, Brendan (Mathematical and Statistical Sciences)
    • Frei, Chirstoph (Mathematical and Statistical Sciences)
    • Schmuland, Byron (Mathematical and Statistical Sciences)
    • Morck, Randall (Finance and Statistical Analysis)
    • Watanabe, Masahiro (Finance and Statistical Analysis)
    • Glasserman, Paul (Columbia Business School, University of Columbia)
    • Melnikov, Alexander (Mathematical and Statistical Sciences)