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1. Introduction
2. The 'risk-return' trade-off
3. Any new investment poses suitability questions
4. Traditional CB benchmark setting process
5. Portfolio optimisation must control 4 key factors
6. Factors influencing desired currency allocation
7. Optimal currency mix provides flexibility & control
8. Liquidity is often controlled by portfolio risk levels
9. Controlling liquidity based on transaction costs
10. Transaction costs assumptions
11. Downside risk: best controlled at the portfolio level
12. Credit quality is controlled in three ways
13. Event and default transition probabilities
14. Capital market opportunity set (in local currency)
15. Efficient frontier with baseline constraint set
16. A typical portfolio
17. Relaxing the currency constraint
18. Minimum variance portfolio holds more US dollars
19. Relaxing the within-country duration constraint
20. A portfolio with equivalent risk to base case (1)
21. Relaxing the credit constraint
22. A portfolio with equivalent risk to base case (2)
23. Conclusions

Topics Covered

• Central bank asset allocation
• Optimal currency mix
• Portfolio diversification
• Traditional central bank asset allocation approach
• Portfolio efficiency
• Currency and bond correlation
• Quantitative treatment of credit risk
• Liquidity modeling
• Total portfolio risk
• Government and non-government risk
• Minimum risk portfolio
• Currency diversification
• Maximum portfolio efficiency

Links

Series:

• Risk Management for Sovereign Institutions

Categories:

• Finance, Accounting & Economics

Talk Citation

Publication History

• Published on March 1, 2012