Optimal open-loop strategies in a debt management problem

2017 ◽  
Vol 16 (01) ◽  
pp. 133-157
Author(s):  
Alberto Bressan ◽  
Yilun Jiang
Keyword(s):  
Interest Rate ◽  
Optimal Strategies ◽  
Open Loop ◽  
Debt Management ◽  
Management Problem ◽  
Bankruptcy Risk ◽  
Future Evolution ◽  
Standard Problem ◽  
Necessary Conditions For Optimality ◽  
The Interest Rate

The paper studies optimal strategies for a borrower who needs to repay his debt, in an infinite time horizon. An instantaneous bankruptcy risk is present, which increases with the size of the debt. This induces a pool of risk-neutral lenders to charge a higher interest rate, to compensate for the possible loss of part of their investment. Solutions are interpreted as Stackelberg equilibria, where the borrower announces his repayment strategy [Formula: see text] at all future times, and lenders adjust the interest rate accordingly. This yields a highly non-standard problem of optimal control, where the instantaneous dynamics depend on the entire future evolution of the system. Our analysis shows the existence of optimal open-loop controls, deriving necessary conditions for optimality and characterizing possible asymptotic limits as [Formula: see text].

scholarly journals Monetary Policy in the Post Keynesian Theoretical Framework

2017 ◽  
Vol 37 (1) ◽  
pp. 45-64
Author(s):  
FÁBIO HENRIQUE BITTES TERRA ◽  
PHILIP ARESTIS
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Inflation Targeting ◽  
Debt Management ◽  
Policy Framework ◽  
Original Writings ◽  
Policy Model ◽  
Original Contribution ◽  
The Interest Rate ◽  
Monetary Policy Framework

ABSTRACT The purpose of this contribution is to develop a Post Keynesian monetary policy model, presenting its goals, tools, and channels. The original contribution this paper develops, following (Keynes’s 1936, 1945) proposals, is the use of debt management as an instrument of monetary policy, along with the interest rate and regulation. Moreover, this paper draws its monetary policy model by broadly and strongly relying on Keynes’s original writings. A monetary policy model erected upon this basis relates itself directly to the Post Keynesian efforts to offer a monetary policy framework substantially different from the Inflation Targeting Regime of the New Macroeconomic Consensus.

Defined contribution pension planning with a stochastic interest rate and mean-reverting returns under the hyperbolic absolute risk aversion preference

2019 ◽  
Author(s):  
Hao Chang ◽  
Chunfeng Wang ◽  
Zhenming Fang ◽  
Dan Ma
Keyword(s):  
Interest Rate ◽  
Absolute Risk ◽  
Market Price ◽  
Optimal Strategies ◽  
Stochastic Interest Rate ◽  
Market Price Of Risk ◽  
Absolute Risk Aversion ◽  
Stochastic Interest ◽  
Price Of Risk ◽  
The Interest Rate

Abstract The interest rate and the market price of risk may be stochastic in a real-world financial market. In this paper, the interest rate is assumed to be driven by a stochastic affine interest rate model and the market price of risk from the stock market is a mean-reverting process. In addition, the dynamics of the stock are simultaneously driven by random sources of interest rate and the stock market itself. In pension fund management, different fund managers may have different risk preferences. We suppose risk preference is described by the hyperbolic absolute risk aversion utility, which is a general utility function describing different risk preferences. Legendre transform-dual theory is presented to successfully obtain explicit expressions for optimal strategies. A numerical example illustrates the sensitivity of optimal strategies to market parameters. Theoretical results imply that the risks from stochastic interest rate and stochastic return may be completely hedged by adopting specific portfolios.

scholarly journals Bond portfolio's duration and investment term-structure management problem

2006 ◽  
Vol 2006 ◽  
pp. 1-19
Author(s):  
Daobai Liu
Keyword(s):  
Interest Rate ◽  
Term Structure ◽  
Interest Rate Risk ◽  
Management Problem ◽  
Short Term ◽  
Bond Portfolio ◽  
Stochastic Interest ◽  
Bond Portfolios ◽  
Interest Rate Model ◽  
The Interest Rate

In the considered bond market, there are N zero-coupon bonds transacted continuously, which will mature at equally spaced dates. A duration of bond portfolios under stochastic interest rate model is introduced, which provides a measurement for the interest rate risk. Then we consider an optimal bond investment term-structure management problem using this duration as a performance index, and with the short-term interest rate process satisfying some stochastic differential equation. Under some technique conditions, an optimal bond portfolio process is obtained.

scholarly journals Confederation debt management since 1970

2019 ◽  
Vol 155 (1) ◽  
Author(s):  
Basil Guggenheim ◽  
Mario Meichle ◽  
Thomas Nellen
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Interest Rate Risk ◽  
Debt Maturity ◽  
Debt Management ◽  
Total Debt ◽  
Rate Risk ◽  
Rate Environment ◽  
The Interest Rate ◽  
Lock In

Abstract This paper analyzes the Confederation’s debt management. The Confederation actively manages roll over and interest rate risk by increasing bond maturity with increasing marketable debt-to-GDP levels. It further engages in active but asymmetric, one-sided interest rate positioning; i.e., it uses mostly bonds to affect debt maturity and does so only when the interest rate environment is favorable to lock-in interest rates by issuing longer-term bonds. Debt management is mainly driven by marketable debt rather than total debt. Issuing behavior became more regular and demand-oriented during the early 1990s when marketable and total debt increased in tandem.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

DETERMINAN INFLASI DI INDONESIA PERIODE 1980-2015

2016 ◽  
Vol 21 (1) ◽  
pp. 1-7
Author(s):  
Risna Risna
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Government Spending ◽  
Positive Impact ◽  
Secondary Data ◽  
Quantitative Approach ◽  
State Spending ◽  
Factors Affecting ◽  
The Interest Rate

This study aims to determine the effect of government spending, the money supply, the interest rate of Bank Indonesia against inflation.This study uses secondary data. Secondary data were obtained directly from the Central Bureau of Statistics and Bank Indonesia. It can be said that there are factors affecting inflationas government spending, money supply, and interest rates BI. The reseach uses a quantitative approach to methods of e-views in the data. The results of analysis of three variables show that state spending significantand positive impact on inflationin Indonesia, the money supply significantand negative to inflationin Indonesia, BI rate a significantand positive impact on inflation in Indonesia

Insurance Companies and the Interest Rate

1953 ◽  
Vol 9 (4) ◽  
pp. 15-17
Author(s):  
Shelby Cullom Davis
Keyword(s):  
Interest Rate ◽  
Insurance Companies ◽  
The Interest Rate

Analyzing the financial and economic momentum as a result of changes in the interest rate

2020 ◽  
Vol 16 (9) ◽  
pp. 1656-1673
Author(s):  
V.V. Smirnov
Keyword(s):  
Interest Rate ◽  
Natural Gas ◽  
Central Bank ◽  
Crude Oil ◽  
Oil Prices ◽  
Global Capitalism ◽  
Positive Effects ◽  
Russian Economy ◽  
Oil And Natural Gas ◽  
The Interest Rate

Subject. The article discusses financial and economic momenta. Objectives. I determine financial and economic momenta as the interest rate changes in Russia. Methods. The study is based on a systems approach and the method of statistical analysis. Results. The Russian economy was found to strongly depend on prices for crude oil and natural gas, thus throwing Russia to the outskirts of the global capitalism, though keeping the status of an energy superpower, which ensures a sustainable growth in the global economy by increasing the external consumption and decreasing the domestic one. The devaluation of the national currency, a drop in tax revenue, etc. result from the decreased interest rate. They all require to increase M2 and the devalued retail loan in RUB, thus rising the GDP deflator. As for positive effects, the Central Bank operates sustainably, replenishes gold reserves and keeps the trade balance (positive balance), thus strengthening its resilience during a global drop in crude oil prices and the COVID-19 pandemic. The positive effects were discovered to result from a decreased in the interest rate, rather than keeping it low all the time. Conclusions and Relevance. As the interest rate may be, the financial and economic momentum in Russia depends on the volatility of the price for crude oil and natural gas. Lowering the interest rate and devaluing the national currency, the Central Bank preserves the resource structure of the Russian economy, strengthens its positions within the global capitalism and keeps its status of an energy superpower, thus reinforcing its resilience against a global drop in oil prices.

Sign in / Sign up

Export Citation Format

Share Document