Modelling take-up and profitability

Research output: Contribution to journalArticlepeer-review

Abstract

We use response data collected by a lender to estimate the probabilities of loan offers being accepted by the applicants and the survival probabilities of default and of paying back early. Combining all those together we estimated the expected profit surface for the lender at the time of application before making an offer to an applicant. The results show how a lender could find the optimal interest rate to increase the expected profit or its market share. We also consider how different optimal decision policies could be applied to different market segments.
Original languageEnglish
Pages (from-to)430-442
Number of pages13
JournalJournal of the Operational Research Society
Volume61
Issue number3
DOIs
Publication statusPublished - 14 Mar 2010

Keywords

  • profitability
  • acceptance
  • credit
  • take-up

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