Investigating Cash Flow Behavior Using Stochastic Processes

Abstract

In the conceptual framework of financial accounting, which serves the purposes of financial reporting, special attention has been paid to cash flow. The purpose of this study is a new understanding of cash flow behavior and the creation of a new experimental model. This research is applied in terms of purpose and quantitative in terms of implementation. The statistical population of the present study is the annual cash balance of 48 specific bank branches (due to the confidentiality of information, it is not mentioned). Two hypotheses have been considered in this research: 1) Cash balances has a Stochastic property; 2) The Geometric Brownie model is better than the Arithmetic Brownie, Vasicek, and Modified Square Root models. The results of the test have been confirmed to be random. Also, by comparing the four models using MSE, RMSE and MAE tests, the best estimation model has been selected and the comparison results of the models have confirmed the Geometric Brownie inclination model as a more efficient model.

Keywords

• cash flow
• cash balance
• stochastic process
• stochastic differential equations