Simulation-based optimisation of the timing of loan recovery across different portfolios
| dc.contributor.author | Botha, Arno | |
| dc.contributor.author | Beyers, Conrad F.J. | |
| dc.contributor.author | De Villiers, Johan Pieter | |
| dc.contributor.email | conrad.beyers@up.ac.za | en_US |
| dc.date.accessioned | 2022-10-19T07:49:14Z | |
| dc.date.issued | 2021-09 | |
| dc.description.abstract | A novel procedure is presented for the objective comparison and evaluation of a bank’s decision rules in optimising the timing of loan recovery. This procedure is based on finding a delinquency threshold at which the financial loss of a loan portfolio (or segment therein) is minimised. Our procedure is an expert system that incorporates the time value of money, costs, and the fundamental trade-off between accumulating arrears versus forsaking future interest revenue. Moreover, the procedure can be used with different delinquency measures (other than payments in arrears), thereby allowing an indirect comparison of these measures. We demonstrate the system across a range of credit risk scenarios and portfolio compositions. The computational results show that threshold optima can exist across all reasonable values of both the payment probability (default risk) and the loss rate (loan collateral). In addition, the procedure reacts positively to portfolios afflicted by either systematic defaults (such as during an economic downturn) or episodic delinquency (i.e., cycles of curing and re-defaulting). In optimising a portfolio’s recovery decision, our procedure can better inform the quantitative aspects of a bank’s collection policy than relying on arbitrary discretion alone. | en_US |
| dc.description.department | Electrical, Electronic and Computer Engineering | en_US |
| dc.description.department | Insurance and Actuarial Science | en_US |
| dc.description.embargo | 2023-04-30 | |
| dc.description.sponsorship | The Absa Chair in Actuarial Science, hosted at the University of Pretoria. | en_US |
| dc.description.uri | https://www.elsevier.com/locate/eswa | en_US |
| dc.identifier.citation | Botha, A., Beyers, C. & De Villiers, P. 2021, 'Simulation-based optimisation of the timing of loan recovery across different portfolios', Expert Systems with Applications, vol. 177, art. 114878, pp. 1-13, doi : 10.1016/j.eswa.2021.114878. | en_US |
| dc.identifier.issn | 0957-4174 (print) | |
| dc.identifier.issn | 1873-6793 (online) | |
| dc.identifier.other | 10.1016/j.eswa.2021.114878 | |
| dc.identifier.uri | https://repository.up.ac.za/handle/2263/87797 | |
| dc.language.iso | en | en_US |
| dc.publisher | Elsevier | en_US |
| dc.rights | © 2021 Elsevier Ltd. All rights reserved. Notice : this is the author’s version of a work that was accepted for publication in Expert Systems with Applications. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. A definitive version was subsequently published in Expert Systems with Applications, vol. 177, art. 114878, pp. 1-13, 2021. doi : 10.1016/j.eswa.2021.114878. | en_US |
| dc.subject | Optimisation | en_US |
| dc.subject | Credit loss | en_US |
| dc.subject | Loan delinquency | en_US |
| dc.subject | Collections | en_US |
| dc.subject | Expert systems | en_US |
| dc.title | Simulation-based optimisation of the timing of loan recovery across different portfolios | en_US |
| dc.type | Postprint Article | en_US |