Dependence of a Loan Portfolio Structure on a Cut-Off Level in a Scoring Model

Galina A. Timofeeva and Yana A. Bozhalkina
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Galina A. Timofeeva: Ural State University of Railway Transport
Yana A. Bozhalkina: Ural State University of Railway Transport

Journal of New Economy, 2018, vol. 19, issue 2, 24-35

Abstract: The study aims to validate a mathematical model of influence of applications’ selection process on a loan portfolio structure expected by the end of a planned period. When predicting risks and profitability of a loan portfolio, many authors use a mathematical model of a loan portfolio in the form of a Markov chain with discrete time. This model usually does not consider the process of attracting new customers. The present paper proposes a more complete model for changing a loan portfolio structure in the form of a Markov chain taking into account a procedure of attracting new customers and selecting them based on the credit rating. The main advantage of this scheme is that it allows taking into consideration the change in a cut-off level when using a scoring model of customer selection. This provides an opportunity to predict dynamics of the volume and structure of a loan portfolio depending on the selected cut-off level under sufficiently stable economic conditions

Keywords: loan portfolio; risk management; profitability; Markov model; scoring (search for similar items in EconPapers)
JEL-codes: C53 G21 G32 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:url:izvest:v:19:y:2018:i:2:p:24-35

DOI: 10.29141/2073-1019-2018-19-2-2

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