Latent factor models for credit scoring in P2P systems
Daniel Felix Ahelegbey (),
Paolo Giudici () and
Physica A: Statistical Mechanics and its Applications, 2019, vol. 522, issue C, 112-121
Peer-to-Peer (P2P) FinTech platforms allow cost reduction and service improvement in credit lending. However, these improvements may come at the price of a worse credit risk measurement, and this can hamper lenders and endanger the stability of a financial system. We approach the problem of credit risk for Peer-to-Peer (P2P) systems by presenting a latent factor-based classification technique to divide the population into major network communities in order to estimate a more efficient logistic model. Given a number of attributes that capture firm performances in a financial system, we adopt a latent position model which allow us to distinguish between communities of connected and not-connected firms based on the spatial position of the latent factors. We show through empirical illustration that incorporating the latent factor-based classification of firms is particularly suitable as it improves the predictive performance of P2P scoring models.
Keywords: Credit risk; Factor models; Financial technology; Peer-to-peer; Scoring models; Spatial clustering (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
Working Paper: Latent Factor Models for Credit Scoring in P2P Systems (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:522:y:2019:i:c:p:112-121
Access Statistics for this article
Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis
More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().