Optimization of Earnings in Stochastic Industries, with Applications to Casinos

Gambling casinos and banks are examples of stochastic industries whose sole commodity is cash. To optimize income, cash reserves should be determined so that earnings, subject to default penalties, are a maximum. This article provides a straightforward procedure, involving a financial growth equatio...

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Bibliographic Details
Published in:Journal of the American Statistical Association 1978-09, Vol.73 (363), p.499-503
Main Authors: Visscher, William M., Goldman, Aaron S.
Format: Article
Language:English
Subjects:
Applications
Audit departments
Betting
Cash
Cash flow
Casinos
Economic busts
Gambling
Gaming tables
Interest rates
Markov process
Money
Roulette
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Summary:Gambling casinos and banks are examples of stochastic industries whose sole commodity is cash. To optimize income, cash reserves should be determined so that earnings, subject to default penalties, are a maximum. This article provides a straightforward procedure, involving a financial growth equation, that can readily be applied to any cash-transactional business to obtain cash reserve requirements for various default criteria. Examples involving actual cash flow data from two Las Vegas casinos are given and analyzed to confirm the felicity of the method.
ISSN:0162-1459
1537-274X
DOI:10.1080/01621459.1978.10480043