IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v20y1985i03p353-369_01.html
   My bibliography  Save this article

Simple Optimal Policy for Cash Management: The Average Balance Requirement Case

Author

Listed:
  • Vickson, R. G.

Abstract

This paper treats a problem of stochastic cash management under an average compensating-balance requirement. It develops a dynamic programming formulation of the problem in which the relevant state is a unidimensional quantity equivalent to the forecasted average balance at the end of the averaging period. Under usably broad conditions, it establishes the optimality of a transient policy of simple type, similar to the two-sided inventory type policy familiar from certain earlier studies of stationary cash balance problems having absolute balance requirements. The results apply to cases in which the transactions costs contain both fixed and proportional components. The paper discusses also a numerical example drawn from the literature of the cash balance problem and shows by simulation of the optimal (and simply modified forms of the optimal) policy, that good protection is afforded against negative balances, even though the model does not explicitly constrain the negative-balance probabilities.

Suggested Citation

  • Vickson, R. G., 1985. "Simple Optimal Policy for Cash Management: The Average Balance Requirement Case," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(3), pages 353-369, September.
  • Handle: RePEc:cup:jfinqa:v:20:y:1985:i:03:p:353-369_01
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109000011716/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Griffiths, Mark D. & Winters, Drew B., 1995. "Day-of-the-week effects in federal funds rates: Further empirical findings," Journal of Banking & Finance, Elsevier, vol. 19(7), pages 1265-1284, October.
    2. Eagle, David, 1995. "Federal-funds-rate volatility and the reserve-maintenance period," Review of Financial Economics, Elsevier, vol. 4(2), pages 157-170.
    3. Bensoussan, Alain & Chutani, Anshuman & Sethi, Suresh, 2009. "Optimal Cash Management Under Uncertainty," MPRA Paper 19896, University Library of Munich, Germany.
    4. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    5. David Eagle, 1995. "Federal‐funds‐rate volatility and the reserve‐maintenance period," Review of Financial Economics, John Wiley & Sons, vol. 4(2), pages 157-170, March.
    6. Greene, Clinton A., 2010. "Smooth-adjustment econometrics and inventory-theoretic money management," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1031-1047, June.
    7. Marcos Melo & Feruccio Bilich, 2013. "Expectancy balance model for cash flow," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(2), pages 240-252, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:20:y:1985:i:03:p:353-369_01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.