When to rebuild or when to adjust scorecards
When to rebuild or when to adjust scorecards
Data-based scorecards, such as those used in credit scoring, age with time and need to be rebuilt or readjusted. Unlike the huge literature on modelling the replacement and maintenance of equipment there have been hardly any models that deal with this problem for scorecards. This paper identifies an effective way of describing the predictive ability of the scorecard and from this describes a simple model for how its predictive ability will develop. Using a dynamic programming approach one is then able to find when it is optimal to rebuild and when to readjust a scorecard. Failing to readjust or rebuild a scorecard when they aged was one of the defects in credit scoring identified in the investigations into the sub-prime mortgage crisis.
consumer credit risk, maintenance, readjust, credit cards, behavioural scores
1656-1668
Jung, K.M.
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Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
So, M.C.
c6922ccf-547b-485e-8b74-a9271e6225a2
October 2015
Jung, K.M.
1bdfb1c1-fec0-471c-8d0d-7244f707e3db
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
So, M.C.
c6922ccf-547b-485e-8b74-a9271e6225a2
Jung, K.M., Thomas, Lyn C. and So, M.C.
(2015)
When to rebuild or when to adjust scorecards.
Journal of the Operational Research Society, 66 (10), .
(doi:10.1057/jors.2015.43).
Abstract
Data-based scorecards, such as those used in credit scoring, age with time and need to be rebuilt or readjusted. Unlike the huge literature on modelling the replacement and maintenance of equipment there have been hardly any models that deal with this problem for scorecards. This paper identifies an effective way of describing the predictive ability of the scorecard and from this describes a simple model for how its predictive ability will develop. Using a dynamic programming approach one is then able to find when it is optimal to rebuild and when to readjust a scorecard. Failing to readjust or rebuild a scorecard when they aged was one of the defects in credit scoring identified in the investigations into the sub-prime mortgage crisis.
Text
110914DJWmaintenancesent.pdf
- Accepted Manuscript
More information
Accepted/In Press date: 27 April 2015
e-pub ahead of print date: 10 June 2015
Published date: October 2015
Keywords:
consumer credit risk, maintenance, readjust, credit cards, behavioural scores
Organisations:
Southampton Business School
Identifiers
Local EPrints ID: 377920
URI: http://eprints.soton.ac.uk/id/eprint/377920
ISSN: 0160-5682
PURE UUID: 4cfcbbb0-bcc2-4472-af2c-65b60a928cf8
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Date deposited: 24 Jun 2015 13:29
Last modified: 15 Mar 2024 03:29
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Contributors
Author:
K.M. Jung
Author:
Lyn C. Thomas
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