Trade credit portfolio selection – a markovian approach

Dariusz Wędzki ()

Operations Research and Decisions, 2007, vol. 17, issue 2, 105-119

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.

Keywords: application of finite Markov chains; financial liquidity management; accounts receivable management (search for similar items in EconPapers)
Date: 2007
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