Modelling the profitability of credit cards by Markov decision processes
Modelling the profitability of credit cards by Markov decision processes
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
University of Southampton
So, Mee Chi
c6922ccf-547b-485e-8b74-a9271e6225a2
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
June 2009
So, Mee Chi
c6922ccf-547b-485e-8b74-a9271e6225a2
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
So, Mee Chi and Thomas, Lyn C.
(2009)
Modelling the profitability of credit cards by Markov decision processes
(Discussion Papers in Centre for Operational Research, Management Science and Information Systems, CORMSIS-09-09)
Southampton, GB.
University of Southampton
23pp.
Record type:
Monograph
(Discussion Paper)
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
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CORMSIS-09-09.pdf
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Published date: June 2009
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Local EPrints ID: 71324
URI: http://eprints.soton.ac.uk/id/eprint/71324
PURE UUID: dd19d68b-22b4-4b91-96ba-3973201b61fa
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Date deposited: 03 Feb 2010
Last modified: 14 Mar 2024 02:53
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Author:
Lyn C. Thomas
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