@article{Stochastic:1271,
      recid = {1271},
      author = {Bolder, David},
      title = {A Stochastic Simulation Framework for the Government of  Canada's Debt Strategy},
      publisher = {Bank of Canada},
      address = {2003},
      pages = {1 online resource (viii, 96 pages)},
      abstract = {Debt strategy is defined as the manner in which a  government finances an excess of government expenditures  over revenues and any maturing debt issued in previous  periods. The author gives a thorough qualitative  description of the complexities of debt strategy analysis  and then demonstrates that it is, in fact, a problem in  stochastic optimal control. Although this formal definition  is conceptually useful, the author recommends the use of  simulation to help characterize the set of strategies that  a government can use to fund its borrowing requirements. He  then describes in detail a stochastic simulation framework,  building from previous work in Bolder (2001, 2002); this  framework forms one important element in the debt strategy  decision-making process employed by the Government of  Canada. The primary objective in constructing this  stochastic simulation framework is to learn about the  nature of the risk and cost trade-offs associated with  different financing strategies. To this end, the paper  includes a detailed description of the model; a set of  possible debt cost and risk measures, including one  potentially useful conditional risk measure; illustrative  results under normal stochastic conditions; an analysis of  the sensitivity of the results to various key model  parameters; a novel approach to stress testing; and a  possible framework for selecting a financing strategy,  given assumptions about government risk preferences.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/1271},
      doi = {https://doi.org/10.34989/swp-2003-10},
}