Optimization of Earnings in Stochastic Industries, with Applications to Casinos
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.