Profit-based credit models with lender’s attitude towards risk and loss

Autor:	Edwin Baidoo, Ramachandran Natarajan
Rok vydání:	2021
Předmět:	Variable (computer science) Profit (accounting) Loan Profit maximization Economics Econometrics Default risk Estimator Cutoff Profitability index Finance
Zdroj:	Journal of Behavioral and Experimental Finance. 32:100578
ISSN:	2214-6350
DOI:	10.1016/j.jbef.2021.100578
Popis:	Profit scoring represents a shift from default risk modeling. Here, lenders align their lending strategies to reflect their profitability objective. This paper proposes models that address the lender’s profit maximization objective. We develop varying cutoff functions that inform lending decisions while considering a lender’s attitude towards risk and loss. We derive two propositions about the properties of the variable cutoff functions for risk-averse and loss-averse lenders. Using a proprietary consumer loan data set, we show the effect of cutoff functions in lending decisions and find that both risk-averse and loss-averse lenders are profitable if they use parameter estimators that support their profitability objective.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::0c82bec3f31c7c56c79753a172ef3615 https://doi.org/10.1016/j.jbef.2021.100578 Zobrazit plný text záznamu Full Text from ScienceDirect