Important and growing field with few existing texts
Author is well respected in the field
Provides descriptions of the basic concepts of scoring inluding an explanation
of how survival anlaysis can be used
Clarifies different measures of scorecard quality
Original description of variable pricing on loans
Careful analysis of the Basel New Accord on credit scoring
The use of credit scoring - the quantitative and statistical techniques to assess the
credit risks involved in lending to consumers - has been one of the most successful if
unsung applications of mathematics in business for the last fifty years. Now with lenders
changing their objectives from minimising defaults to maximising profits, the saturation
of the consumer credit market allowing borrowers to be more discriminating in their choice
of which loans, mortgages and credit cards to use, and the Basel Accord banking
regulations raising the profile of credit scoring within banks there are a number of
challenges that require new models that use credit scores as inputs and extensions of the
ideas in credit scoring. This book reviews the current methodology and measures used in
credit scoring and then looks at the models that can be used to address these new
challenges.
The first chapter describes what a credit score is and how a scorecard is built which
gives credit scores and models how the score is used in the lending decision. The second
chapter describes the different ways the quality of a scorecard can be measured and points
out how some of these measure the discrimination of the score, some the probability
prediction of the score, and some the categorical predictions that are made using the
score.
The remaining three chapters address how to use risk and response scoring to model the
new problems in consumer lending. Chapter three looks at models that assist in deciding
how to vary the loan terms made to different potential borrowers depending on their
individual characteristics. Risk based pricing is the most common approach being
introduced. Chapter four describes how one can use Markov chains and survival analysis to
model the dynamics of a borrower's repayment and ordering behaviour . These models allow
one to make decisions that maximise the profitability of the borrower to the lender and
can be considered as part of a customer relationship management strategy. The last chapter
looks at how the new banking regulations in the Basel Accord apply to consumer lending. It
develops models that show how they will change the operating decisions used in consumer
lending and how their need for stress testing requires the development of new models to
assess the credit risk of portfolios of consumer loans rather than a models of the credit
risks of individual loans.
Readership: Graduates and researchers in Statistics, Economics,
Business, Management Science, Banking and Finance
Lyn C. Thomas, Professor of Management Science, Quantitative Financial
Risk Management Centre, University of Southampton
Table of Contents
Preface
1: Introduction to Consumer Credit an Credit Scoring
2: Measurement of Scoring Systems
3: Risk Based Pricing
4: Profit Scoring and Dynamic Models
5: Portfolio Credit Risk and the Basel Accord
Appendices
References
Index
400 pages, Hardcover