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When to rebuild or when to adjust scorecards

Author

Listed:
  • Ki Mun Jung

    (Kyungsung University, Busan, South Korea)

  • Lyn C Thomas

    (University of Southampton, Southampton, United Kingdom)

  • Mee Chi So

    (University of Southampton, Southampton, United Kingdom)

Abstract

Data-based scorecards, such as those used in credit scoring, age with time and need to be rebuilt or readjusted. Unlike the huge literature on modelling the replacement and maintenance of equipment there have been hardly any models that deal with this problem for scorecards. This paper identifies an effective way of describing the predictive ability of the scorecard and from this describes a simple model for how its predictive ability will develop. Using a dynamic programming approach one is then able to find when it is optimal to rebuild and when to readjust a scorecard. Failing to readjust or rebuild a scorecard when they aged was one of the defects in credit scoring identified in the investigations into the sub-prime mortgage crisis.

Suggested Citation

  • Ki Mun Jung & Lyn C Thomas & Mee Chi So, 2015. "When to rebuild or when to adjust scorecards," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 66(10), pages 1656-1668, October.
    • Handle: RePEc:pal:jorsoc:v:66:y:2015:i:10:p:1656-1668
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    Citations

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    Cited by:

    1. Dimitrios Nikolaidis & Michalis Doumpos, 2022. "Credit Scoring with Drift Adaptation Using Local Regions of Competence," SN Operations Research Forum, Springer, vol. 3(4), pages 1-28, December.
    2. Siyi Wang & Xing Yan & Bangqi Zheng & Hu Wang & Wangli Xu & Nanbo Peng & Qi Wu, 2021. "Risk and return prediction for pricing portfolios of non-performing consumer credit," Papers 2110.15102, arXiv.org.

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