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Scenario-Generation Methods for an Optimal Public Debt Strategy

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 offcial rate in the present case). The second component of each rate is represented by the fluctuations having null correlation with the ECB rate.