Optimizing the Creditworthiness Threshold of a Bivariate Distribution
Dr. Hui Gong
Arts and Sciences
0000-0001-8031-7902, 0000-0001-9243-5957, 0000-0002-3820-5293
Financial institutions must evaluate credit applications when deciding to issue credit. Creditworthiness varies amongst the applicants. Creditors must decide which applications to accept in order to maximize profit. For this paper, we assume applicants are divided into Good and Bad populations. We found optimal threshold values that maximized the creditor’s profit under varying assumptions of Normal, χ2 , and Γ- distributions. To do so, we optimized the profit function with respect to the threshold value and we ran simulations to find the threshold value that maximizes the profit.
Jones, Malachi L.; Knutson, Victoria E.; and Stockton, Benjamin, "Optimizing the Creditworthiness Threshold of a Bivariate Distribution" (2018). Summer Interdisciplinary Research Symposium. 32.