Additionally, an advanced sensitivity analysis was performed on some deterministic variables and an analysis of stress was carried out upon the main
stochastic variables.
r](W) denotes the r-th cumulant of the
stochastic variable W.
Tables 3 and 4 illustrate the results for the three tests and the two
stochastic variables.
The accuracy of risk analysis can be further improved if information is available about the movement of the K
stochastic variables other than their individual mean and variances.
In a strong relationship with the
stochastic variables, the dependence can be determined through regression or correlation.
Each combination of these
stochastic variables allowed us to estimate cash flows for the farmer.
Because doubles the number of
stochastic variables so N to 2N and [mu] to 2[mu] becomes.
Thus, the conditions (17) are essentially yield conditions with
stochastic variables.
On the assumption that the
stochastic variables follow Brownian motion, the maximization results in an intuitively satisfying result where the optimum net worth is determined by the maximum distance between the growth of net worth (a linear function of the level of debt) and the mean risk (a convex function of the level of debt), which is shown graphically in Figure 4.
Then the influence of the
stochastic variables was discussed and some preliminary conclusions were drawn out.
They change over time in response to changes in the simulated values of the three firm-specific
stochastic variables, namely, leverage ratio, cash-flow-to-assets, and employment.
According to the centred limit theorem, if the
stochastic variables are independent and equal in significance, then the density of their sum (x = x1 + x2 .
