Multiple-criteria cash-management policies with particular liquidity terms

[EN] Eliciting policies for cash management systems with multiple assets is by no means straightforward. Both the particular relationship between alternative assets and time delays from control decisions to availability of cash introduce additional difficulties. Here we propose a cash management model to derive short-term finance policies when considering multiple assets with different expected returns and particular liquidity terms for each alternative asset. In order to deal with the inherent uncertainty about the near future introduced by cash flows, we use forecasts as a key input to the model. We express uncertainty as lack of predictive accuracy and we derive a deterministic equivalent problem that depends on forecasting errors and preferences of cash managers. Since the assessment of the quality of forecasts is recommended, we describe a method to evaluate the impact of predictive accuracy in cash management policies. We illustrate this method through several numerical examples.Salas-Molina, F.; Pla Santamaría, D.; Garcia-Bernabeu, A.; Mayor-Vitoria, F. (2020). Multiple-criteria cash-management policies with particular liquidity terms. IMA Journal of Management Mathematics. 31(2):217-231. https://doi.org/10.1093/imaman/dpz010S217231312Abdelaziz, F. B., Aouni, B., & Fayedh, R. E. (2007). Multi-objective stochastic programming for portfolio selection. European Journal of Operational Research, 177(3), 1811-1823. doi:10.1016/j.ejor.2005.10.021Aouni, B., Ben Abdelaziz, F., & La Torre, D. (2012). The Stochastic Goal Programming Model: Theory and Applications. Journal of Multi-Criteria Decision Analysis, 19(5-6), 185-200. doi:10.1002/mcda.1466Aouni, B., Colapinto, C., & La Torre, D. (2014). Financial portfolio management through the goal programming model: Current state-of-the-art. European Journal of Operational Research, 234(2), 536-545. doi:10.1016/j.ejor.2013.09.040Baccarin, S. (2009). Optimal impulse control for a multidimensional cash management system with generalized cost functions. European Journal of Operational Research, 196(1), 198-206. doi:10.1016/j.ejor.2008.02.040Ballestero, E. (2001). Stochastic goal programming: A mean–variance approach. European Journal of Operational Research, 131(3), 476-481. doi:10.1016/s0377-2217(00)00084-9Ballestero, E., & Romero, C. (1998). Multiple Criteria Decision Making and its Applications to Economic Problems. doi:10.1007/978-1-4757-2827-9Bemporad, A., & Morari, M. (1999). Control of systems integrating logic, dynamics, and constraints. Automatica, 35(3), 407-427. doi:10.1016/s0005-1098(98)00178-2Cabello, J. G. (2013). Cash efficiency for bank branches. SpringerPlus, 2(1). doi:10.1186/2193-1801-2-334García Cabello, J., & Lobillo, F. J. (2017). Sound branch cash management for less: A low-cost forecasting algorithm under uncertain demand. Omega, 70, 118-134. doi:10.1016/j.omega.2016.09.005Charnes, A., & Cooper, W. W. (1959). Chance-Constrained Programming. Management Science, 6(1), 73-79. doi:10.1287/mnsc.6.1.73Charnes, A., & Cooper, W. W. (1977). Goal programming and multiple objective optimizations. European Journal of Operational Research, 1(1), 39-54. doi:10.1016/s0377-2217(77)81007-2Constantinides, G. M., & Richard, S. F. (1978). Existence of Optimal Simple Policies for Discounted-Cost Inventory and Cash Management in Continuous Time. Operations Research, 26(4), 620-636. doi:10.1287/opre.26.4.620Moraes, M. B. da C., & Nagano, M. S. (2014). Evolutionary models in cash management policies with multiple assets. Economic Modelling, 39, 1-7. doi:10.1016/j.econmod.2014.02.010Da Costa Moraes, M. B., Nagano, M. S., & Sobreiro, V. A. (2015). Stochastic Cash Flow Management Models: A Literature Review Since the 1980s. Decision Engineering, 11-28. doi:10.1007/978-3-319-11949-6_2Eppen, G. D., & Fama, E. F. (1969). Cash Balance and Simple Dynamic Portfolio Problems with Proportional Costs. International Economic Review, 10(2), 119. doi:10.2307/2525547Gormley, F. M., & Meade, N. (2007). The utility of cash flow forecasts in the management of corporate cash balances. European Journal of Operational Research, 182(2), 923-935. doi:10.1016/j.ejor.2006.07.041Gregory, G. (1976). Cash flow models: A review. Omega, 4(6), 643-656. doi:10.1016/0305-0483(76)90092-xHerrera-Cáceres, C. A., & Ibeas, A. (2016). Model predictive control of cash balance in a cash concentration and disbursements system. Journal of the Franklin Institute, 353(18), 4885-4923. doi:10.1016/j.jfranklin.2016.09.007Higson, A., Yoshikatsu, S., & Tippett, M. (2009). Organization size and the optimal investment in cash. IMA Journal of Management Mathematics, 21(1), 27-38. doi:10.1093/imaman/dpp015Miller, M. H., & Orr, D. (1966). A Model of the Demand for Money by Firms. The Quarterly Journal of Economics, 80(3), 413. doi:10.2307/1880728Miller, T. W., & Stone, B. K. (1985). Daily Cash Forecasting and Seasonal Resolution: Alternative Models and Techniques for Using the Distribution Approach. The Journal of Financial and Quantitative Analysis, 20(3), 335. doi:10.2307/2331034Penttinen, M. J. (1991). Myopic and stationary solutions for stochastic cash balance problems. European Journal of Operational Research, 52(2), 155-166. doi:10.1016/0377-2217(91)90077-9Prékopa, A. (1995). Stochastic Programming. doi:10.1007/978-94-017-3087-7Salas-Molina, F. (2017). Risk-sensitive control of cash management systems. Operational Research, 20(2), 1159-1176. doi:10.1007/s12351-017-0371-0Salas-Molina, F., Martin, F. J., Rodríguez-Aguilar, J. A., Serrà, J., & Arcos, J. L. (2017). Empowering cash managers to achieve cost savings by improving predictive accuracy. International Journal of Forecasting, 33(2), 403-415. doi:10.1016/j.ijforecast.2016.11.002Salas-Molina, F., Pla-Santamaria, D., & Rodriguez-Aguilar, J. A. (2016). A multi-objective approach to the cash management problem. Annals of Operations Research, 267(1-2), 515-529. doi:10.1007/s10479-016-2359-1Salas-Molina, F., Pla-Santamaria, D., & Rodríguez-Aguilar, J. A. (2017). Empowering Cash Managers Through Compromise Programming. Financial Decision Aid Using Multiple Criteria, 149-173. doi:10.1007/978-3-319-68876-3_7Salas-Molina, F., Rodríguez-Aguilar, J. A., & Pla-Santamaria, D. (2018). Boundless multiobjective models for cash management. The Engineering Economist, 63(4), 363-381. doi:10.1080/0013791x.2018.1456596Srinivasan, V., & Kim, Y. H. (1986). Deterministic cash flow management: State of the art and research directions. Omega, 14(2), 145-166. doi:10.1016/0305-0483(86)90017-4Stone, B. K. (1972). The Use of Forecasts and Smoothing in Control-Limit Models for Cash Management. Financial Management, 1(1), 72. doi:10.2307/3664955Stone, B. K., & Miller, T. W. (1987). Daily Cash Forecasting with Multiplicative Models of Cash Flow Patterns. Financial Management, 16(4), 45. doi:10.2307/366610