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Centre for the Analysis of Risk and Optimisation Modelling Applications Treasury Management Model with Foreign Exchange Exposure A multi-disciplinary research centre focussed on understanding, modelling, quantification, management and control of RISK Centre for the Analysis of Risk and Optimisation Modelling Applications
In this paper we formulate a model for foreign exchange exposure management and (international) cash management taking into consideration random fluctuations of exchange rates. A vector error correction model (VECM) is used to predict the random behaviour of the forward as well as spot rates connecting dollar and sterling. A two-stage stochastic programming (TWOSP) decision model is formulated using these random parameter values. This model computes currency hedging strategies, which providefatcat:uvcbx4fv5bacxhkhfh3f4syfby