Modelling the profitability of credit cards by Markov decision processes


So, Mee Chi and Thomas, Lyn C. (2009) Modelling the profitability of credit cards by Markov decision processes. Southampton, GB, University of Southampton, 23pp. (Discussion Papers in Centre for Operational Research, Management Science and Information Systems, (CORMSIS-09-09) ).

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Description/Abstract

This paper derives a model for the profitability of credit cards, which allow lenders to find the optimal dynamic credit limit policy. The model is a Markov decision process, where the states of the system are based on the borrower's behavioural score and the decisions are what credit limit to give the borrower each period. In determining the Markov chain which best describes the borrower's performance second order as well as first order Markov chains are considered and estimation procedures that deal with the low default levels that may exist in the data are considered. A case study is used to show how the optimal credit limit can be derived

Item Type: Monograph (Discussion Paper)
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HG Finance
Divisions: University Structure - Pre August 2011 > School of Management
ePrint ID: 71324
Date Deposited: 03 Feb 2010
Last Modified: 27 Mar 2014 18:50
URI: http://eprints.soton.ac.uk/id/eprint/71324

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