International Journal of Theoretical and Applied Finance c  World Scientific Publishing Company Optimal Strategies for the Issuances of Public Debt Securities Massimiliano Adamo, Anna Lisa Amadori, Massimo Bernaschi, Claudia La Chioma, Alessia Marigo, Benedetto Piccoli, Simone Sbaraglia, Adamo Uboldi, Davide Vergni Istituto per le Applicazioni del Calcolo “Mauro Picone” – CNR Viale del Policlinico, 137, 00161 Roma, Italy Paola Fabbri, Davide Iacovoni, Francesco Natale Stefano Scalera, Lucia Spilotro, Antonella Valletta Department of the treasury – Italian Ministry of Economy and Finance Via XX Settembre, 97, 00187 Roma, Italy We describe a model for the optimization of the issuances of Public Debt securities developed together with the Italian Ministry of Economy and Finance. The goal is to find the composition of the portfolio issued every month which minimizes a specific “cost function”. Mathematically speaking, this is a stochastic optimal control problem with strong constraints imposed by national regulations and the Maastricht treaty. The stochastic component of the problem is represented by the evolution of interest rates. At this time the optimizer employs classic Linear Programming techniques. However more sophisticated techniques based on Model Predictive Control strategies are under development. 1. Introduction The Growth and Stability Pact (GSP), subscribed by the countries of the Euro- pean Union (EU) in Maastricht, defines “sound and disciplined public finances” as an essential condition for strong and sustainable growth with improved employment creation. Since in Italy the expenses for interest payments on Public Debt is about 13% of the Budget Deficit (that is the difference between revenues and expenditures) the Public Debt Management Division of the Italian Ministry of Economy and Fi- nance and the Institute for Applied Computing have established a partnership in order to study which securities to issue to achieve an optimal debt composition. The goal is to determine the composition of the portfolio issued every month which minimizes a predefined cost function. This can be, for instance, the width of fluctuations of deficit over a given time horizon or the interest expenses. Mathematically speaking, this is a stochastic optimal control problem with sev- eral constraints imposed by national and supranational regulations and by market practices. Among the former, for example, the Stability and Growth Pact rules require that • the Budget Deficit, has to be below 3% of Gross Domestic Product (GDP) (i.e., the total output of the economy); • the Nominal Debt, that is the nominal amount of securities issued to finance