The Stochastic Cash Balance Problem with Fixed Costs: The Risk-averse Case

Abstract

Abstract This paper discusses multi-period stochastic cash balance problem with fixed costs when the decision maker is risk averse. By using the consumption model introduced by Chen et al, we characterize the structure of the optimal policy for the stochastic cash balance problem under the general increasing concave utility function and exponential utility function, respectively. We show that the structure of the optimal policy for a decision maker with exponential utility function is almost identical to the structure of the optimal risk-neutral operations policy. Furthermore, we extend the results for the exponential utility function to the ambiguity aversion case.