Affordable Access

Stochastic Optimal Control Modeling of Debt Crises

CESifo München
Publication Date
  • Ddc:330
  • Stochastic Optimal Control
  • Debt
  • International Finance
  • Us Agricultural Crisis
  • Mean-Variance Analysis
  • Hamilton-Jacobi-Bellaman Equation
  • Computer Science
  • Mathematics


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.

There are no comments yet on this publication. Be the first to share your thoughts.