Debt Management (Chan-Lau and Santos)

Prepared by Jorge A. Chan-Lau and André O. Santos, this paper introduces the Asset and Liability Management (ALM) compound option model, considered as better suited the risk profile of public debt and also usefull for analyzing the soundness of exit strategies from the large fiscal expansions undertaken by G-20 countries in the wake of the recent financial crisis. As an example, they have analyzed the risk profile and sustainability of Australia.