Liquidity, Risk, and Return: Specifying an Objective Function for the Management of Foreign Reserves
An objective function is a key component of a strategic portfolio management model used to determine the optimal allocations of assets and, possibly, their associated liabilities over some investment horizon. The author discusses investment philosophies and perspectives for the management of foreign reserves, and investigates how to translate the three common policy objectives for reserves (liquidity, safety, and return) into objective functions for strategic reserves management. Stochastic programming is identified as an advantageous modelling framework to capture the objectives of foreign reserves management, and a strategic reserves management model is illustrated that trades off expected net returns with costs and liquidity issues related to a potential liquidation of a portion of the portfolio.
|Date of creation:||2010|
|Contact details of provider:|| Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada|
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, vol. 33(3-4), pages 345-362, November.
When requesting a correction, please mention this item's handle: RePEc:bca:bocadp:10-13. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.