Issue: 2007/Vol.17/No.2, Pages 105-119
TRADE CREDIT PORTFOLIO SELECTION – A MARKOVIAN APPROACH
Dariusz Wędzki
Cite as: D. Wędzki. Trade credit portfolio selection – a markovian approach. Operations Research and Decisions 2007: 17(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
Received: Accepted: