The Stochastic Cash Balance Problem with Fixed Costs: The Risk-averse Case

Liu Shuren () and Tang Pei ()
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Liu Shuren: School of Mathematics and Computational Science, Xiangtan University, Xiangtan411105, China
Tang Pei: School of Mathematics and Computational Science, Xiangtan University, Xiangtan411105, China

Journal of Systems Science and Information, 2014, vol. 2, issue 6, 520-531

Abstract: This paper discusses multi-period stochastic cash balance problem with fixed costs when the decision maker is risk averse. By using the consumption model introduced by Chen et al, we characterize the structure of the optimal policy for the stochastic cash balance problem under the general increasing concave utility function and exponential utility function, respectively. We show that the structure of the optimal policy for a decision maker with exponential utility function is almost identical to the structure of the optimal risk-neutral operations policy. Furthermore, we extend the results for the exponential utility function to the ambiguity aversion case.

Keywords: stochastic cash balance problem; risk aversion; ambiguity aversion; stochastic dynamic programming (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:2:y:2014:i:6:p:520-531:n:3

DOI: 10.1515/JSSI-2014-0520

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