Optimal Asset Allocation for Sovereign Wealth Funds: Theory and Practice

25 Pages Posted: 25 Oct 2013 Last revised: 5 Dec 2013

See all articles by Zvi Bodie

Zvi Bodie

Boston University

Marie Briere

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

Date Written: October 24, 2013


This paper addresses management of sovereign wealth from the perspective of the theory of contingent claims. Starting with the sovereign’s balance sheet, we frame sovereign fund management as an asset-liability management (ALM) problem, covering all public entities and taking explicit account of all sources of risks affecting government resources and expenditures. Real-life SWFs asset allocations differ strongly from theoretical ones. Financial management of the sovereign balance sheet is hampered by a lack of aggregate data, which compromises the coordination of sovereign wealth management with fiscal policy, monetary policy and public debt management. In this framework, we suggest institutional arrangements that could overcome this obstacle and enable efficient coordination.

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

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

Suggested Citation

Bodie, Zvi and Briere, Marie, Optimal Asset Allocation for Sovereign Wealth Funds: Theory and Practice (October 24, 2013). Boston U. School of Management Research Paper No. 2013-11, Available at SSRN: https://ssrn.com/abstract=2344747 or http://dx.doi.org/10.2139/ssrn.2344747

Zvi Bodie

Boston University ( email )

12 Salisbury Road
Brookline, MA
United States
617 306 5556 (Phone)

HOME PAGE: http://www.zvibodie.com

Marie Briere (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015

Paris Dauphine University ( email )

Université Libre de Bruxelles ( email )


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