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 language | English |
|---|---|
| Pages (from-to) | 430-442 |
| Number of pages | 13 |
| Journal | Journal of the Operational Research Society |
| Volume | 61 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 14 Mar 2010 |
Keywords / Materials (for Non-textual outputs)
- profitability
- acceptance
- credit
- take-up