Abstract: Short-Term Financial Planning under Uncertainty

Extract

The essence of short-term financial planning is to determine an asset and liability mix that minimizes the cost of financing the firm's cash surpluses and deficits over the planning horizon. Seasonal and other effects cause uncertainty in forecasted cash requirements, liquidation, and termination costs. We develop a stochastic linear programming model that is computationally feasible for a firm's financial planning over several periods with all three types of uncertainty when there is a rich structure over the set of possible asset choices. The models' solution is facilitated using a recent novel algorithm for finitely distributed simple recourse SLPR problems developed by Wets and coded by Collins, Kallberg and Kusy. The algorithm uses a “working basis” that has the same dimension as the corresponding (approximate) “mean” linear program.