Optimal Cash Management under Uncertainty

Bensoussan, Alain; Chutani, Anshuman; Sethi, Suresh

Optimal Cash Management under Uncertainty

Operations Research Letters, Vol. 37, pp. 425-429, 2009

15 Pages Posted: 28 Feb 2009 Last revised: 27 Mar 2014

Alain Bensoussan

University of Texas at Dallas - Naveen Jindal School of Management; Hong Kong Polytechnic University - Faculty of Business; Ajou University

Anshuman Chutani

University of Texas at Dallas - Naveen Jindal School of Management

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: February 26, 2009

Abstract

We solve an agent’s optimization problem of meeting demands for cash over time with cash deposited in bank or invested in stock. The stock pays dividends and uncertain capital gains, and a commission is incurred in buying and selling of stock. We use a stochastic maximum principle to obtain explicitly the optimal transaction policy.

Keywords: Cash management, stochastic control, maximum principle, risky assets

JEL Classification: C61, G11, M21, M11

Suggested Citation: Suggested Citation

Bensoussan, Alain and Chutani, Anshuman and Sethi, Suresh, Optimal Cash Management under Uncertainty (February 26, 2009). Operations Research Letters, Vol. 37, pp. 425-429, 2009, Available at SSRN: https://ssrn.com/abstract=1350528