A Dynamic Model for Cash Flow at Risk
25 Pages Posted: 9 Jan 2019
Date Written: December 18, 2018
Abstract
In this paper we define a new dynamic approach for measuring the Cash- Flow-at-Risk of a firm. Starting from the assumption that the balance sheet evolves according to a system of difference equations involving the most important accounting records, we define a new risk measure, tailored on our dynamic approach, which takes full advantage of its focus on the liquidity process. A numerical example based on a real case study shows the flexibility of our approach in describing distress and default events.
Keywords: Cash Flow, Difference Equation, Sensitivity Analysis, Cash Flow at Risk
JEL Classification: C02, C13, G31, M40
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