Stochastic Debt Sustainability Analysis for Sovereigns and the Scope for Optimization Modeling

Optimization and Engineering, Forthcoming

The Wharton School Research Paper No. 17-07

20 Pages Posted: 12 May 2017 Last revised: 20 Oct 2018

See all articles by Andrea Consiglio

Andrea Consiglio

Università degli Studi della Calabria

Stavros A. Zenios

Durham University Business School; University of Cyprus; Cyprus Academy of Sciences, Letters, and Arts; Bruegel

Date Written: May 1, 2017

Abstract

We express the opinion that sovereign debt sustainability analysis must be augmented by stochastic correlated risk factors and a risk measure to capture tail effects. Crisis situations can thus be adequately specified and analyzed with sufficient accuracy to warrant the relevance of policy decisions. In this context there is significant scope for optimization modeling for both strategic planning and operational management. We discuss diverse aspects of the problem of debt sustainability and highlight modeling approaches that can be brought to bear on the problem. Results with the fictitiuous, but nor unrealistic, Kingdom of Atlantis, which is sinking under excessive debt, illustrate the proposed models.

Keywords: Sovereign debt, sustainability analysis, risk management, stochastic programming, scenarios, VaR, CVaR

JEL Classification: C61, C63, D61, E3, E47, E62, F34, G38, H63

Suggested Citation

Consiglio, Andrea and Zenios, Stavros A., Stochastic Debt Sustainability Analysis for Sovereigns and the Scope for Optimization Modeling (May 1, 2017). Optimization and Engineering, Forthcoming, The Wharton School Research Paper No. 17-07, Available at SSRN: https://ssrn.com/abstract=2961906

Andrea Consiglio

Università degli Studi della Calabria ( email )

Dipartimento di Organizzazione Aziendale
87036 Arcavacata di Rende CS
ITALY
00-39-0984-492253 (Phone)
00-39-0984-492288 (Fax)

Stavros A. Zenios (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

University of Cyprus ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
+357 2 893605 (Phone)

HOME PAGE: http://https://www.researchgate.net/profile/Stavros_Zenios

Cyprus Academy of Sciences, Letters, and Arts ( email )

Nicosia
Cyprus

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

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