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Are Cash Management Optimization Models Worthwhile?

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  • Daellenbach, Hans G.

Abstract

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.

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  • Daellenbach, Hans G., 1974. "Are Cash Management Optimization Models Worthwhile?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(4), pages 607-626, September.
    • Handle: RePEc:cup:jfinqa:v:9:y:1974:i:04:p:607-626_01
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    Cited by:

    1. Salas-Molina, Francisco & Martin, Francisco J. & Rodríguez-Aguilar, Juan A. & Serrà, Joan & Arcos, Josep Ll., 2017. "Empowering cash managers to achieve cost savings by improving predictive accuracy," International Journal of Forecasting, Elsevier, vol. 33(2), pages 403-415.
    2. Francisco Salas-Molina, 2024. "Fitting random cash management models to data," Papers 2401.08548, arXiv.org.
    3. F. K. Wright, 1978. "Minimizing the Costs of Liquidity," Australian Journal of Management, Australian School of Business, vol. 3(2), pages 203-224, October.
    4. Francisco Salas-Molina & Juan A. Rodríguez-Aguilar & Montserrat Guillen, 2023. "A multidimensional review of the cash management problem," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-35, December.
    5. Marcos Melo & Feruccio Bilich, 2013. "Expectancy balance model for cash flow," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(2), pages 240-252, April.
    6. Havran, Dániel, 2008. "Pénzgazdálkodási szokások hatása a működőtőkére. A Magyar Posta példája [The effect of financial management habits on operating capital. The example of the Hungarian Post Office]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 907-926.

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