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Sovereign Wealth and Risk Management: A Framework for Optimal Asset Allocation of Sovereign Wealth


Zvi Bodie


Boston University - Department of Finance & Economics

Marie Briere


Amundi Asset Management; Paris Dauphine University; Université Libre de Bruxelles

August 2013

Boston U. School of Management Research Paper No. 2011-8

Abstract:     
This paper sets out a new approach to sovereign wealth and risk management, based on the theory of contingent claim analysis (CCA). To manage sovereign risk, it is essential to analyse the sovereign’s balance sheet. The state has to solve an asset-liability management (ALM) problem between its sources of income and its expenditure. The analytical framework for this approach covers all public entities, not only the state budget, and includes implicit guarantees to the private sector. It has a number of essential applications for sovereign wealth management, particularly with respect to sovereign wealth funds (SWFs) and foreign exchange reserves. We present the conceptual framework, tools and data needed to carry out this type of analysis. We then focus on Chile to provide a practical example of sovereign balance sheet estimation and sovereign ALM.

Number of Pages in PDF File: 33

Keywords: Balance Sheet, Contingent Claim Analysis, Asset-Liability Management, Sovereign Wealth Funds, Central Bank Reserves

JEL Classification: G11, G18, H11, H50, H63

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Date posted: March 4, 2011 ; Last revised: November 21, 2013

Suggested Citation

Bodie, Zvi and Briere, Marie, Sovereign Wealth and Risk Management: A Framework for Optimal Asset Allocation of Sovereign Wealth (August 2013). Boston U. School of Management Research Paper No. 2011-8. Available at SSRN: http://ssrn.com/abstract=1460692 or http://dx.doi.org/10.2139/ssrn.1460692

Contact Information

Zvi Bodie
Boston University - Department of Finance & Economics ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-4160 (Phone)
617-353 6667 (Fax)
HOME PAGE: http://smgnet.bu.edu/mgmt/profiles/BodieZvi.html
Marie Briere (Contact Author)
Amundi Asset Management ( email )
90 Boulevard Pasteur
Paris, 75015
France
Paris Dauphine University ( email )
place du Maréchal de Lattre de Tassigny
Paris, 75016
France
Université Libre de Bruxelles ( email )
Brussels
Belgium
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