A stochastic cash model with deterministic elements

  • Willem-Max Van den Bergh
  • Winfried Hallerbach


In this paper we present a simple model which gives a solution to a (one period) stochastic cash problem with a fixed cash outlay at the end of the period. We focus on the role of options as insurance contracts, as to value a constraint on the minimum cash level. It is argued that a cash level adjustment is optimal where the sum of the marginal cost of liquidity and the marginal insurance premium (options value) is zero.


Simple Model Economic Theory Marginal Cost Public Finance Insurance Premium 
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Copyright information

© Springer-Verlag 1989

Authors and Affiliations

  • Willem-Max Van den Bergh
    • 1
  • Winfried Hallerbach
    • 1
  1. 1.Erasmus University RotterdamRotterdamNetherlands

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