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Optimization of Earnings in Stochastic Industries, with Applications to Casinos

William M. Visscher and Aaron S. Goldman
Journal of the American Statistical Association
Vol. 73, No. 363 (Sep., 1978), pp. 499-503
DOI: 10.2307/2286589
Stable URL: http://www.jstor.org/stable/2286589
Page Count: 5
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Optimization of Earnings in Stochastic Industries, with Applications to Casinos
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Abstract

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.

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