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Dependence of a Loan Portfolio Structure on a Cut-Off Level in a Scoring Model

Author

Listed:
  • Galina A. Timofeeva

    (Ural State University of Railway Transport)

  • Yana A. Bozhalkina

    (Ural State University of Railway Transport)

Abstract

The study aims to validate a mathematical model of influence of applications’ selection process on a loan portfolio structure expected by the end of a planned period. When predicting risks and profitability of a loan portfolio, many authors use a mathematical model of a loan portfolio in the form of a Markov chain with discrete time. This model usually does not consider the process of attracting new customers. The present paper proposes a more complete model for changing a loan portfolio structure in the form of a Markov chain taking into account a procedure of attracting new customers and selecting them based on the credit rating. The main advantage of this scheme is that it allows taking into consideration the change in a cut-off level when using a scoring model of customer selection. This provides an opportunity to predict dynamics of the volume and structure of a loan portfolio depending on the selected cut-off level under sufficiently stable economic conditions

Suggested Citation

  • Galina A. Timofeeva & Yana A. Bozhalkina, 2018. "Dependence of a Loan Portfolio Structure on a Cut-Off Level in a Scoring Model," Journal of New Economy, Ural State University of Economics, vol. 19(2), pages 24-35, April.
    • Handle: RePEc:url:izvest:v:19:y:2018:i:2:p:24-35
    DOI: 10.29141/2073-1019-2018-19-2-2
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    References listed on IDEAS

    as
    1. Antonella Foglia, 2008. "Stress testing credit risk: a survey of authorities' approaches," Questioni di Economia e Finanza (Occasional Papers) 37, Bank of Italy, Economic Research and International Relations Area.
    2. Anisa Caja & Quentin Guibert & Frédéric Planchet, 2015. "Influence of Economic Factors on the Credit Rating Transitions and Defaults of Credit Insurance Business," Working Papers hal-01178812, HAL.
    3. L Quirini & L Vannucci, 2014. "Creditworthiness dynamics and Hidden Markov Models," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 65(3), pages 323-330, March.
    4. Anderson, Raymond, 2007. "The Credit Scoring Toolkit: Theory and Practice for Retail Credit Risk Management and Decision Automation," OUP Catalogue, Oxford University Press, number 9780199226405.
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    More about this item

    Keywords

    loan portfolio; risk management; profitability; Markov model; scoring;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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