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Trade credit portfolio selection – a markovian approach

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  • Dariusz Wędzki

Abstract

The application of stochastic processes to the prediction of accounts receivable and cash flow is a classic financial operations research problem. Although there is a vast related literature, some theoretical and practical problems still exist. This paper investigates a form of vector which initiates a Markovian process because the distribution of this vector is much more simple for practical reasons than is suggested in literature. A Markovian prediction when the initial vector varies from period to period but a fundamental matrix is constant, is also examined. A more general case is a model in which the fundamental matrix, as well as the initial vector, is time varying. The main focus of this paper is to develop a criterion helpful in selecting clients on the basis of the definite risk of trade credit portfolio under Markovian model of accounts receivable.

Suggested Citation

  • Dariusz Wędzki, 2007. "Trade credit portfolio selection – a markovian approach," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 17(2), pages 105-119.
    • Handle: RePEc:wut:journl:v:2:y:2007:p:105-119
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    References listed on IDEAS

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    1. Halina Frydman & Jarl G. Kallberg & Duen-Li Kao, 1985. "Testing the Adequacy of Markov Chain and Mover-Stayer Models as Representations of Credit Behavior," Operations Research, INFORMS, vol. 33(6), pages 1203-1214, December.
    2. R. M. Cyert & H. J. Davidson & G. L. Thompson, 1962. "Estimation of the Allowance for Doubtful Accounts by Markov Chains," Management Science, INFORMS, vol. 8(3), pages 287-303, April.
    3. Jos A. M. van Kuelen & Jaap Spronk & A. Wayne Corcoran, 1981. "Note---On the Cyert-Davidson-Thompson Doubtful Accounts Model," Management Science, INFORMS, vol. 27(1), pages 108-112, January.
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