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Modelling take-up and profitability

Author

Listed:
  • P Ma

    (University of Edinburgh)

  • J Crook

    (University of Edinburgh)

  • J Ansell

    (University of Edinburgh)

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.

Suggested Citation

  • P Ma & J Crook & J Ansell, 2010. "Modelling take-up and profitability," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(3), pages 430-442, March.
    • Handle: RePEc:pal:jorsoc:v:61:y:2010:i:3:d:10.1057_jors.2009.33
    DOI: 10.1057/jors.2009.33
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    References listed on IDEAS

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    1. G Andreeva & J Ansell & J N Crook, 2005. "Modelling the purchase propensity: analysis of a revolving store card," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(9), pages 1041-1050, September.
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    6. R M Oliver & E Wells, 2001. "Efficient frontier cutoff policies in credit portfolios," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 52(9), pages 1025-1033, September.
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    9. Andreeva, Galina & Ansell, Jake & Crook, Jonathan, 2007. "Modelling profitability using survival combination scores," European Journal of Operational Research, Elsevier, vol. 183(3), pages 1537-1549, December.
    10. R L Keeney & R M Oliver, 2005. "Designing win-win financial loan products for consumers and businesses," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(9), pages 1030-1040, September.
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    Cited by:

    1. Kim, Hyeongjun & Cho, Hoon & Ryu, Doojin, 2018. "An empirical study on credit card loan delinquency," Economic Systems, Elsevier, vol. 42(3), pages 437-449.
    2. Hon, Pak Shun & Bellotti, Tony, 2016. "Models and forecasts of credit card balance," European Journal of Operational Research, Elsevier, vol. 249(2), pages 498-505.
    3. Lore Dirick & Gerda Claeskens & Bart Baesens, 2017. "Time to default in credit scoring using survival analysis: a benchmark study," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(6), pages 652-665, June.
    4. Sanchez-Barrios, Luis Javier & Andreeva, Galina & Ansell, Jake, 2016. "“Time-to-profit scorecards for revolving credit”," European Journal of Operational Research, Elsevier, vol. 249(2), pages 397-406.

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