Title

Optimizing the Creditworthiness Threshold of a Bivariate Distribution

Faculty Sponsor

Dr. Hui Gong

College

Arts and Sciences

Department/Program

VERUM REU

ORCID Identifier(s)

0000-0001-8031-7902, 0000-0001-9243-5957, 0000-0002-3820-5293

Document Type

Poster Presentation

Symposium Date

Summer 7-30-2018

Abstract

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.

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