Loan origination decisions using a multinomial scorecard
Lu Gao (),
Kanshukan Rajaratnam and
Peter Beling ()
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Peter Beling: University of Virginia
Annals of Operations Research, 2016, vol. 243, issue 1, No 12, 199-210
Abstract This paper explores the case of a consumer loan portfolio manager incorporating the output of a multinomial classifier in the acquisition decision process. We suppose the portfolio manager has access to a pool of applicants and is required to make an accept/reject decision on each applicant. We assume each applicant’s characteristics are used as inputs into the classifier with the output score used to aid in the decision making. Past literature on consumer lending decisions considered the case of a portfolio manager with access to a binomial classifier. For the case of a portfolio manager with a multinomial classifier, we show an efficient policy may be achieved through transforming the score and applying a single cutoff-score strategy on the new score.
Keywords: Credit scoring decisions; Multinomial scorecards; Portfolio optimization; Consumer loans (search for similar items in EconPapers)
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