Hostname: page-component-76fb5796d-r6qrq Total loading time: 0 Render date: 2024-04-26T01:32:12.968Z Has data issue: false hasContentIssue false
  • English
  • Français

Are Cash Management Optimization Models Worthwhile?

Published online by Cambridge University Press:  19 October 2009

Hans G. Daellenbach
Get access Rights & Permissions [Opens in a new window]

Extract

The objective of this paper is to determine upper bounds of the potential savings that can be realized by the application of cash management optimization models. These upper bounds are found by simulation as the difference between the performance of a deterministic optimization model--which finds the optimal policy in hindsight--and the simulated performance of a hypothetical treasurer who uses simple heuristic cash management rules as informally practiced by many treasurers, based on prediction of random cash flows. The results of this analysis leave serious doubts as to profitability of cash management optimization models.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 4 , September 1974 , pp. 607 - 626
Copyright
Copyright © School of Business Administration, University of Washington 1974

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Archer, S.H. “A Model for the Determination of Firm Cash Balances.” The Journal of Financial and Quantitative Analysis, vol. 1 (March 1966).Google Scholar
[2]Baumol, William J. “The Transactions Demand for Cash: An Inventory Theoretic Approach.” Quarterly Journal of Economics, vol. 66 (November 1952).Google Scholar
[3]Bierman, H., and McAdams, A.K.. Management Decisions for Cash and Marketable Securities. Ithaca, N.Y.: Cornell University, 1962.Google Scholar
[4]Calman, R.F.Linear Programming and Cash Management: CASH ALPHA. Cambridge, Mass.: The MIT Press, 1968.Google Scholar
[5] Congress, 86th, 2nd Session, Joint Economic Committee, A Study of the Dealer Market for Federal Government Securities. Washington, D.C., 1960.Google Scholar
[6]Daellenbach, Hans G., and Archer, S. H.. “The Optimal Bank Liquidity: A Multi-Period Stochastic Model.” Journal of Financial and Quantitative Analysis, vol. 4 (September 1969).Google Scholar
[7]Daellenbach, Hans G. “A Stochastic Cash Balance Model with Two Sources of Short-Term Funds.” International Economic Review, vol. 12 (June 1971).CrossRefGoogle Scholar
[8]Eppen, Gary D., and Fama, Eugene F.. “Cash Balance and Simple Dynamic Portfolio Problems with Proportional Costs.” International Economic Review, vol. 10 (June 1969).Google Scholar
[9]Eppen, Gary D., and Fama, Eugene F.. “Solutions for Cash Balance and Simple Dynamic Portfolio Problems.” Journal of Business, vol. 41 (January 1968).Google Scholar
[10]Eppen, Gary D., and Fama, Eugene F.. “Three Asset Cash Balance and Dynamic Portfolio Problems.” Management Science, vol. 17 (January 1971).CrossRefGoogle Scholar
[11]Girgis, Nadio Makary. “Optimal Cash Balance Levels.” Management Science, vol. 15 (November 1968).CrossRefGoogle Scholar
[12]Maldonado, R.M., and Ritter, L.S.. “Optimal Municipal Cash Management: A Case Study.” The Review of Economics and Statistics, vol. 53 (November 1971).Google Scholar
[13]Miller, Merton H., and Orr, Daniel. “A Model of the Demand for Money by Firms.” Quarterly Journal of Economics, vol. 80 (August 1966).Google Scholar
[14]Miller, Merton H., and Orr, Daniel. “An Application of Control-Limit Models to the Management of Corporate Cash Balances.” In Financial Research and Management Decisions, edited by Robichek, A.A.. New York: Wiley, 1967.Google Scholar
[15]Miller, Merton H., and Orr, Daniel. “The Demand for Money by Firms: Extensions of Analytic Results.” The Journal of Finance, vol. 23 (December 1968).Google Scholar
[16]Neave, Edwin H. “The Stochastic Cash Balance Problem with Fixed Costs for Increases and Decreases.” Management Science, vol. 16 (March 1970).Google Scholar
[17]Orgler, A.E.Cash Management. Belmont, Calif.: Wadsworth Publishing Company, Inc., 1970.Google Scholar
[18]Pflomm, Norman E.Managing Company Cash. New York: National Industrial Conference Board Inc., Business Policy Study No. 99.Google Scholar
[19]Robichek, Alexander A.; Teichroew, D.; and Jones, J.M.. “Optimal Short-Term Financing Decision.” Management Science, vol. 12 (September 1965).CrossRefGoogle Scholar
[20]Tobin, James. “The Interest-Elasticity of Transactions Demand for Cash.” Review of Economics and Statistics, vol. 38 (August 1956).Google Scholar