COST-AT-RISK AND BENCHMARK GOVERNMENT DEBT PORTFOLIO IN KOREA

This paper provides a framework to identify and achieve a benchmark portfolio structure for government debt based upon the trade-off between expected debt-service-cost and risk. Using actual Korean government debt data, we empirically derive a medium-term efficient frontier conditional upon the exis...

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Bibliographic Details
Published in:International economic journal 2003, Vol.17 (2), p.79-103
Main Authors: HAHM, JOON-HO, KIM, JINHO
Format: Article
Language:English
Subjects:
Bonds
Borrowing
Debt
Debt management
Economics
Korea
Portfolio analysis
Risk
Sovereignty
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Summary:This paper provides a framework to identify and achieve a benchmark portfolio structure for government debt based upon the trade-off between expected debt-service-cost and risk. Using actual Korean government debt data, we empirically derive a medium-term efficient frontier conditional upon the existing portfolio structure. In addition, a target benchmark portfolio is identified from the efficient frontier by employing a penalty function with cost-at-risk and duration gap as two penalty factors. The target portfolio identified above also implies an optimal borrowing policy as to the maturity mix of the government bond issuance. [H6, G1, F3]
ISSN:1016-8737
1743-517X
DOI:10.1080/10168730300080014