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Chance-Constrained Financing as a Response to Financial Risk

Author

Listed:
  • Joseph A. Atwood
  • Myles J. Watts
  • Glenn A. Helmers

Abstract

The results of a recent survey suggest that many decision makers view financial risk in a safety-first context. Imposing safety-first chance constraints on potential financial ratios or flows can be difficult with traditional methods. This is particularly true with financial ratios when both the numerator and denominator are random and are affected by endogenous decisions. A model and numerical example are presented which enforce probabilistic or chance constraints upon potential debt/asset ratios in a multiperiod linear program. The model can be easily modified to probabilistically constrain alternative financial performance measures such as current ratios, working ratios, or cash flows.

Suggested Citation

  • Joseph A. Atwood & Myles J. Watts & Glenn A. Helmers, 1988. "Chance-Constrained Financing as a Response to Financial Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(1), pages 79-89.
    • Handle: RePEc:oup:ajagec:v:70:y:1988:i:1:p:79-89.
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    File URL: http://hdl.handle.net/10.2307/1241978
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    Cited by:

    1. Tadesse, Dawit & Blank, Steven C., 2003. "Cultivar Diversity: A Neglected Risk Management Strategy," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(2), pages 1-16, August.
    2. Ayub, Usman & Shah, Syed Zulfiqar Ali & Abbas, Qaisar, 2015. "Robust analysis for downside risk in portfolio management for a volatile stock market," Economic Modelling, Elsevier, vol. 44(C), pages 86-96.
    3. Duffy, Patricia A. & Cain, Danny L. & Young, George J., 1993. "Incorporating The 1990 Farm Bill Into Farm-Level Decision Models: An Application To Cotton Farms," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 25(2), pages 1-15, December.
    4. Mikémina, Pilo & Gerber, Nicolas & Wünscher, Tobias, 2018. "Impacts of Adaptation to Climate Change on farmers’ income in the Savana Region of Togo," Discussion Papers 271152, University of Bonn, Center for Development Research (ZEF).
    5. Boehlje, Michael & Olson, Kent D., 1991. "Linkages Between Farm And Financial Management," Staff Papers 13339, University of Minnesota, Department of Applied Economics.
    6. Peng, Shen & Maggioni, Francesca & Lisser, Abdel, 2022. "Bounds for probabilistic programming with application to a blend planning problem," European Journal of Operational Research, Elsevier, vol. 297(3), pages 964-976.
    7. Hatch, L. Upton & Atwood, Joseph A. & Segar, James, 1989. "An Application Of Safety-First Probability Limits In A Discrete Stochastic Farm Management Programming Model," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 21(1), pages 1-8, July.

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