A stochastic programming approach to cash management in banking
The treasurer of a bank is responsible for the cash management of several banking activities. In this work, we focus on two of them: cash management in automatic teller machines (ATMs), and in the compensation of credit card transactions. In both cases a decision must be taken according to a future customers demand, which is uncertain. From historical data we can obtain a discrete probability distribution of this demand, which allows the application of stochastic programming techniques. We present stochastic programming models for each problem. Two short-term and one mid-term models are presented for ATMs. The short-term model with fixed costs results in an integer problem which is solved by a fast (i.e. linear running time) algorithm. The short-term model with fixed and staircase costs is solved through its MILP equivalent deterministic formulation. The mid-term model with fixed and staircase costs gives rise to a multi-stage stochastic problem, which is also solved by its MILP deterministic equivalent. The model for compensation of credit card transactions results in a closed form solution. The optimal solutions of those models are the best decisions to be taken by the bank, and provide the basis for a decision support system.
Year of publication: |
2009
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Authors: | Castro, Jordi |
Published in: |
European Journal of Operational Research. - Elsevier, ISSN 0377-2217. - Vol. 192.2009, 3, p. 963-974
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Publisher: |
Elsevier |
Keywords: | Stochastic programming OR in banking Integer stochastic programming |
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