Survival Analysis Methods for Personal Loan Data

Maria Stepanova () and Lyn Thomas ()
Additional contact information
Maria Stepanova: UBS AG, Financial Services Group, Pelikanstrasse 6, CH-8098 Zurich, Switzerland
Lyn Thomas: Department of Management, University of Southampton, Southampton, United Kingdom, S017 1BJ

Operations Research, 2002, vol. 50, issue 2, 277-289

Abstract: Credit scoring is one of the most successful applications of quantitative analysis in business. This paper shows how using survival-analysis tools from reliability and maintenance modeling allows one to build credit-scoring models that assess aspects of profit as well as default. This survival-analysis approach is also finding favor in credit-risk modeling of bond prices. The paper looks at three extensions of Cox's proportional hazards model applied to personal loan data. A new way of coarse-classifying of characteristics using survival-analysis methods is proposed. Also, a number of diagnostic methods to check adequacy of the model fit are tested for suitability with loan data. Finally, including time-by-characteristic interactions is proposed as a way of possible improvement of the model's predictive power.

Keywords: Risk: estimating credit risk for personal loans; Failure models: Survival analysis applied to credit scoring models (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (77)

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