Optimal repayment policies for multiple loans

Sushil K Gupta, Anand S Kunnathur and Krishnan Dandapani

Omega, 1987, vol. 15, issue 4, 323-330

Abstract: This paper extends the applications of scheduling theory to certain problems in the area of finance. Specifically, a branch and bound algorithm to identify optimal repayment policies for multiple loans (credit purchases) has been developed. Each loan qualifies for a discount if it is paid on or before a certain date and a penalty is imposed if it is paid after its due date. These two dates are different in general. It is assumed that the cash for repayment is generated at a constant rate per day and it can be invested so that it continues to earn money until used for repayment. The objective is to minimize the present value of all future cash outflows.

Date: 1987
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