Modeling Repayment Behavior of Consumer Loan in Portfolio across Business Cycle: A Triplet Markov Model Approach

With a view to develop a more realistic model for credit risk analysis in consumer loan, our paper addresses the problem of how to incorporate business cycles into a repayment behavior model of consumer loan in portfolio. A particular Triplet Markov Model (TMM) is presented and introduced to describ...

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Bibliographic Details
Published in:Complexity (New York, N.Y.) N.Y.), 2020, Vol.2020 (2020), p.1-11
Main Authors: Chen, Shou, Jiang, Xiangqian
Format: Article
Language:English
Subjects:
Algorithms
Bad debts
Business
Business cycles
Computer simulation
Consumer finance companies
Consumers
Economic models
Loans
Marketing research
Markov analysis
Markov chains
Markov processes
Mathematical models
Monte Carlo method
Parameter estimation
Payment
Risk analysis
Risk assessment
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Summary:With a view to develop a more realistic model for credit risk analysis in consumer loan, our paper addresses the problem of how to incorporate business cycles into a repayment behavior model of consumer loan in portfolio. A particular Triplet Markov Model (TMM) is presented and introduced to describe the dynamic repayment behavior of consumers. The particular TMM can simultaneously capture the phases of business cycles, transition of systematic credit risk of a loan portfolio, and Markov repayment behavior of consumers. The corresponding Markov chain Monte Carlo algorithms of the particular TMM are also developed for estimating the model parameters. We show how the transition of consumers’ repayment states and systematic credit risk of a loan portfolio are affected by the phases of business cycles through simulations.
ISSN:1076-2787
1099-0526
DOI:10.1155/2020/5458941