A dynamic scorecard for monitoring baseline performance with application to tracking a mortgage portfolio

J Whittaker (), C Whitehead () and M Somers
Additional contact information
J Whittaker: Lancaster University
C Whitehead: Lancaster University
M Somers: Scimetrics Ltd

Journal of the Operational Research Society, 2007, vol. 58, issue 7, 911-921

Abstract: Abstract A principled technique for monitoring the performance of a consumer credit scorecard through time is derived from Kalman filtering. Standard approaches sporadically compare certain characteristics of the new applicants with those predicted from the scorecard. The new approach systematically updates the scorecard combining new applicant information with the previous best estimate. The dynamically updated scorecard is tracked through time and compared to limits calculated by sequential simulation from the baseline scorecard. The observation equation of the Kalman filter is tailored to take the results of fitting local scorecards by logistic regression to batches of new clients that arrive in the current time interval. The states in the Kalman filter represent the true or underlying score for each attribute in the card: the parameters of the logistic regression. Their progress in time is modelled by a random walk and the filter provides the best estimate of the scores using past and present information. We illustrate the technique using a commercial mortgage portfolio and the results indicate significant emerging deficiencies in the baseline scorecard.

Keywords: credit scoring; Gini coefficient; Kalman filter; logistic regression; mortgage scoring; scorecard diagnostics (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1057/palgrave.jors.2602226 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:jorsoc:v:58:y:2007:i:7:d:10.1057_palgrave.jors.2602226

Ordering information: This journal article can be ordered from
http://www.springer. ... search/journal/41274

DOI: 10.1057/palgrave.jors.2602226

Access Statistics for this article

Journal of the Operational Research Society is currently edited by Tom Archibald and Jonathan Crook

More articles in Journal of the Operational Research Society from Palgrave Macmillan, The OR Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().