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A linear programming alternative to discriminant analysis in credit scoring

Author

Listed:
  • William E. Hardy

    (Professors in the Department of Agricultural Economics and Rural Sociology, Auburn University, Auburn, Alabama)

  • John L. Adrian

    (Professors in the Department of Agricultural Economics and Rural Sociology, Auburn University, Auburn, Alabama)

Abstract

The typical technique used to construct credit scoring models is discriminant analysis. This paper presents a descriptive example and empirical analysis to illustrate how linear programming might be used to solve discriminant type problems. Results of the analysis indicated that the linear programming procedure performs well in solving the example credit scoring problem. In addition, the structure of the linear programming model was such that changes could be readily made to reflect either conservative or liberal lending policies.

Suggested Citation

  • William E. Hardy & John L. Adrian, 1985. "A linear programming alternative to discriminant analysis in credit scoring," Agribusiness, John Wiley & Sons, Ltd., vol. 1(4), pages 285-292.
    • Handle: RePEc:wly:agribz:v:1:y:1985:i:4:p:285-292
    DOI: 10.1002/1520-6297(198524)1:4<285::AID-AGR2720010406>3.0.CO;2-M
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    References listed on IDEAS

    as
    1. Johnson, R. Bruce & Hagan, Albert R., 1973. "Agricultural Loan Evaluation with Discriminant Analysis," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 5(2), pages 57-62, December.
    2. Hardy, William E. & Weed, Johno B., 1980. "Objective Evaluation for Agricultural Lending," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 12(1), pages 159-164, July.
    3. Hardy, William E., Jr. & Weed, Johno B., 1980. "Objective Evaluation For Agricultural Lending," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 12(1), pages 1-6, July.
    4. Johnson, R. Bruce & Hagan, Albert R., 1973. "Agricultural Loan Evaluation With Discriminant Analysis," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 5(2), pages 1-6, December.
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    Cited by:

    1. Novak, Michael P. & LaDue, Eddy L., 1999. "Application Of Recursive Partitioning To Agricultural Credit Scoring," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 31(1), pages 1-14, April.
    2. Novak, Michael P. & LaDue, Eddy L., 1997. "Introducing Recursive Partitioning To Agricultural Credit Scoring," Working Papers 127878, Cornell University, Department of Applied Economics and Management.
    3. Thomas, Lyn C., 2000. "A survey of credit and behavioural scoring: forecasting financial risk of lending to consumers," International Journal of Forecasting, Elsevier, vol. 16(2), pages 149-172.
    4. TOBBACK, Ellen & MARTENS, David, 2017. "Retail credit scoring using fine-grained payment data," Working Papers 2017011, University of Antwerp, Faculty of Business and Economics.
    5. Okumu Argan Wekesa & Mwalili Samuel & Mwita Peter, 2012. "Modelling Credit Risk for Personal Loans Using Product-Limit Estimator," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 3(1), pages 22-32, January.

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