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  4. Dynamic Valuation of Delinquent Credit-Card Accounts
 
working paper

Dynamic Valuation of Delinquent Credit-Card Accounts

Chehrazi, Naveed
•
Weber, Thomas A.  
2015

This paper introduces a dynamic model of the stochastic repayment behavior exhibited by delinquent credit-card accounts. Based on this model, we construct a dynamic collectability score (DCS) which estimates the account-specific probability of collecting a given portion of the outstanding debt over any given time horizon. The model integrates a variety of information sources, including historical repayment data, account-specific, and time-varying macroeconomic covariates, as well as scheduled account-treatment actions. Two model-identification methods are examined, based on maximum-likelihood estimation and the generalized method of moments. The latter allows for an operational-statistics approach, combining model estimation and performance optimization by tailoring the estimation error to business-relevant loss functions. The DCS framework is applied to a large set of account-level repayment data. The improvements in classification and prediction performance compared to standard bank-internal scoring methods are found to be significant.

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Type
working paper
Author(s)
Chehrazi, Naveed
Weber, Thomas A.  
Date Issued

2015

Publisher

Management Science

Subjects

Account valuation

•

consumer credit

•

collectability scoring

•

credit collections

•

GMM estimation

•

maximum-likelihood estimation

•

operational statistics

•

self-exciting point process

Written at

EPFL

EPFL units
OES  
Available on Infoscience
March 12, 2015
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/112362
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