Cash flow management by risk-neutral and risk-averse stochastic approaches

Abstract

This article presents a dynamic cash flow management problem with uncertain parameters in a finite planning horizon via two-stage stochastic programming (SP). We propose a risk-neutral mixed-integer two-stage SP model and risk-averse versions based on the minimax regret and conditional value-at-risk (CVaR) criteria. The models support decisions in cash management that deals with different grace periods, piecewise linear yields and uncertainty in the exchange rate of external sales. The developed approach is applied to a real-world stationery company in Brazil. Numerical results assess the trade-off between risk and return, showing that the optimisation models generate effective solutions for the company’s treasury with reduced risks, which might be appealing for companies from other sectors as well.

Keywords:

• Cash flow management
• mixed-integer programming
• stochastic programming
• minimax with regret
• conditional value-at-risk
• stationery industry

Acknowledgements

We would like to thank the anonymous reviewers for their useful comments and suggestions of revisions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

We also thank the Brazilian stationery company for its important collaboration with this study, as well as the National Council of Technological and Scientific Development (CNPq) and the São Paulo State Research Foundation (FAPESP) in Brazil for their financial support.