Risk analysis of the government domestic debt stock in Turkey: cost-at-risk approach

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2004

Author

Gürcihan, H. Burcu

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In this study, stochastic simulation based risk analysis is applied to the government domestic debt stock in Turkey with the motivation to identify the cost and risk characteristics of alternative debt financing strategies. Future path of interest rates is simulated by using the yield curve forecasting framework in Diebold and Li (2002), which is founded on the Nelson-Siegel yield curve model. Yield curve simulation is based on the estimated term structure of interest rates for the period June 2001-July 2004. Simulated yield curves are generally upward sloped and concave. Contrary to the common observation, long-term yields are more volatile compared to short-term yields. Under each financing strategy, debt is rolled over on top of simulated term structure of interest rates. Alternative financing strategies are compared with respect to absolute Cost-at-Risk, relative Cost-at-Risk and relative risk measures computed from the simulated cost distributions. Results of the risk analysis are influenced by the characteristics of the simulated term structure of interest rates and the additional yield imposed on the coupon bonds, which is assumed to reflect risk perception of investors for increased maturity.

Subject Keywords

Finance, Public.

URI

http://etd.lib.metu.edu.tr/upload/12605677/index.pdf
https://hdl.handle.net/11511/15037

Collections

Graduate School of Social Sciences, Thesis

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Citation Formats

H. B. Gürcihan, “Risk analysis of the government domestic debt stock in Turkey: cost-at-risk approach,” M.S. - Master of Science, Middle East Technical University, 2004.