Stochastic Optimal Control Modeling of Debt Crises

Arbeitspapier

What is an optimal or a sustainable external debt - for a country, region or sector? How should one monitor and evaluate debt to preclude a crisis? We use stochastic optimal control/dynamic programming to derive an optimal debt. The deviation of the actual from the optimal will serve as a Warning Signal of a crisis. There is a correspondence between Hamilton-Jacobi-Bellman equation of Dynamic Programming and the static Mean-Variance (M-V) analysis in finance. A graphic analysis of M-V is helpful to explain the implications of DP. An explicit example is the US Agricultural debt crisis.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 1043

Classification and Topics

• Classification: Wirtschaft
• Subject: stochastic optimal control ; debt ; international finance ; US agricultural crisis ; Mean-Variance analysis ; Hamilton-Jacobi-Bellaman equation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Stein, Jerome L.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/76605
• Last update: 10.03.2025, 11:44 AM CET