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Scenario Generation Methods for Public Debt Management


  • Massimo Bernaschi

    () (Institute for Applied Computing Italian National Research Council)

  • Marco Papi


  • Davide Vergni



We describe the methods we employ for the generation of possible scenarios of the term structure evolution. The problem is originated by the request of the Italian Ministry of Economy and Finance of finding an optimal strategy for the issuance of Public Debt securities. The basic idea is to split the evolution of each rate in two parts. The first component is driven by the evolution of the official rate (the European Central Bank official rate in the present case). The second component of each rate is represented by the fluctuations having null correlation with the ECB rate. Currently we employ a simplified model in which the decisions of the ECB are influenced only by the inflation level but we are working on a more realistic model in which a Taylor's rule can be applied. As to the simulation of the fluctuations of the different maturities, we resort to a multivariate extension of the classic CIR model.

Suggested Citation

  • Massimo Bernaschi & Marco Papi & Davide Vergni, 2006. "Scenario Generation Methods for Public Debt Management," Computing in Economics and Finance 2006 273, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:273

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    References listed on IDEAS

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    4. Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 301-330, September.
    5. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521530927, March.
    6. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521824019, March.
    7. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
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