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Loan origination decisions using a multinomial scorecard

Author

Listed:
  • Lu Gao
  • Kanshukan Rajaratnam

    (University of Cape Town)

  • Peter Beling

    (University of Virginia)

Abstract

This paper explores the case of a consumer loan portfolio manager incorporating the output of a multinomial classifier in the acquisition decision process. We suppose the portfolio manager has access to a pool of applicants and is required to make an accept/reject decision on each applicant. We assume each applicant’s characteristics are used as inputs into the classifier with the output score used to aid in the decision making. Past literature on consumer lending decisions considered the case of a portfolio manager with access to a binomial classifier. For the case of a portfolio manager with a multinomial classifier, we show an efficient policy may be achieved through transforming the score and applying a single cutoff-score strategy on the new score.

Suggested Citation

  • Lu Gao & Kanshukan Rajaratnam & Peter Beling, 2016. "Loan origination decisions using a multinomial scorecard," Annals of Operations Research, Springer, vol. 243(1), pages 199-210, August.
    • Handle: RePEc:spr:annopr:v:243:y:2016:i:1:d:10.1007_s10479-015-1799-3
    DOI: 10.1007/s10479-015-1799-3
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    References listed on IDEAS

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