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Time will tell: behavioural scoring and the dynamics of consumer credit assessment

Time will tell: behavioural scoring and the dynamics of consumer credit assessment
Time will tell: behavioural scoring and the dynamics of consumer credit assessment
This paper discusses the use of dynamic modelling in consumer credit risk assessment. It surveys the approaches and objectives of behavioural scoring, customer scoring and profit scoring. It then investigates how Markov chain stochastic processes can be used to model the dynamics of the delinquency status and behavioural scores of consumers. It discusses the use of segmentation, mover–stayer models and the use of second- and third-order models to improve the fit of such models. The alternative survival analysis proportional hazards approach to estimating when default occurs is considered. Comparisons are made between the ways credit risk is modelled in consumer lending and corporate lending.
behavioural scoring, Markov chains, survival analysis, credit risk modelling
1471-678X
89-103
Thomas, L.C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Ho, J.
5578af0b-ee32-4cfc-90e5-d10be76c9c61
Scherer, W.T.
46b4ef0a-25c9-476a-af51-0e6056b39ffd
Thomas, L.C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Ho, J.
5578af0b-ee32-4cfc-90e5-d10be76c9c61
Scherer, W.T.
46b4ef0a-25c9-476a-af51-0e6056b39ffd

Thomas, L.C., Ho, J. and Scherer, W.T. (2001) Time will tell: behavioural scoring and the dynamics of consumer credit assessment. IMA Journal of Management Mathematics, 12 (1), 89-103. (doi:10.1093/imaman/12.1.89).

Record type: Article

Abstract

This paper discusses the use of dynamic modelling in consumer credit risk assessment. It surveys the approaches and objectives of behavioural scoring, customer scoring and profit scoring. It then investigates how Markov chain stochastic processes can be used to model the dynamics of the delinquency status and behavioural scores of consumers. It discusses the use of segmentation, mover–stayer models and the use of second- and third-order models to improve the fit of such models. The alternative survival analysis proportional hazards approach to estimating when default occurs is considered. Comparisons are made between the ways credit risk is modelled in consumer lending and corporate lending.

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Published date: 2001
Keywords: behavioural scoring, Markov chains, survival analysis, credit risk modelling

Identifiers

Local EPrints ID: 35747
URI: http://eprints.soton.ac.uk/id/eprint/35747
ISSN: 1471-678X
PURE UUID: c013add2-e94c-4228-bdf6-009faf4207cf

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Date deposited: 22 May 2006
Last modified: 15 Mar 2024 07:54

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Contributors

Author: L.C. Thomas
Author: J. Ho
Author: W.T. Scherer

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