1)Optimal Dynamic Cash Management with Correlated Cash Inflow and Outflow under Uncertain Trade Finance Environment

Purpose: In this paper, we consider a firm that manages the cash balance and a portfolio of marketable securities. The firm should meet the firm’s operating cash disbursement. It also faces investment project demands with the option to accept or reject them. An investment project, upon its acceptance, causes cash outflow. Upon the maturity of the investment project, the cash is completely retrieved and increases the firmʼs cash balance. The purpose of this paper is to examine the policy that coordinates buying and selling and the admission control that monitors the investment project to minimize the cost. Composition/Logic: This paper is organized as follows. We present the objectives and overview of the study in section 1. In section 2, we present model assumptions and provide a formulation of our model. Section 3 presents a numerical procedure that determines the optimal cash management policy. In section 4, we discuss the results of the numerical experiment. The last section states conclusions. Findings: Numerical investigation shows that the decisions on cash management are affected by the size of investment projects under operation as well as the cash balance. It also shows that the optimal cash management policy represents a threshold limit when the cash balance level is high—it is optimal to buy security and accept incoming investment project if the cash balance exceeds a certain threshold. However, when the cash balance is low, the structure of the optimal cash management becomes complicated, mainly due to the correlated cash inflow/outflow. Originality/Value: The most distinct feature of our model comes from the fact that the cash inflow and outflow generated by investment projects are correlated. In the cash management literature, it has been generally assumed that these two flows are independent of each other. Another distinct feature is that investment projects are subject to admission control. The insights on admission control in this paper are meaningful in that a dynamic cash balance control coupled with an E-trade system can contribute to the reduction in variability of cash flow due to trade market uncertainty. In addition, this study can provide a theoretical basis for effective retirement asset management.