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Corporate cash-pool valuation in a multi-firm context: a closed formula


  • Berlinger, Edina
  • Bihary, Zsolt
  • Walter, György


Following our earlier paper on the subject, we present a general closed formula to value the interest savings due to a multi-firm cash-pool system. Assuming normal distribution of the accounts the total savings can be expressed as the product of three independent factors representing the interest spread, the number and the correlation of the firms, and the time-dependent distribution of the cash accounts. We derive analytic results for two special processes one characterizing the initial build-up period and the other describing the mature period. The value gained in the stationary system can be thought of as the interest, paid at the net interest spread rate on the standard deviation of the account. We show that pooling has substantial value already in the transient period. In order to increase the practical relevance of our analysis we discuss possible extensions of our model and we show how real option pricing technics can be applied here.

Suggested Citation

  • Berlinger, Edina & Bihary, Zsolt & Walter, György, 2016. "Corporate cash-pool valuation in a multi-firm context: a closed formula," Corvinus Economics Working Papers (CEWP) 2016/06, Corvinus University of Budapest.
  • Handle: RePEc:cvh:coecwp:2016/06

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    References listed on IDEAS

    1. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    2. Buchner, Axel, 2015. "Equilibrium option pricing: A Monte Carlo approach," Finance Research Letters, Elsevier, vol. 15(C), pages 138-145.
    3. Lian, Yu-Min & Chen, Jun-Home & Liao, Szu-Lang, 2016. "Option pricing on foreign exchange in a Markov-modulated, incomplete-market economy," Finance Research Letters, Elsevier, vol. 16(C), pages 208-219.
    4. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 627-627, November.
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    More about this item


    cash management; analytical solution; Brown motion; mean reversion; real option pricing;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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