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Kelly Criterion for Optimal Credit Allocation.
- Source :
- Journal of Risk & Financial Management; Sep2021, Vol. 14 Issue 9, p1-15, 15p, 1 Chart
- Publication Year :
- 2021
-
Abstract
- The purpose of this study is to address the critical issue of optimal credit allocation. Predicting a borrower's probability of default is a key requirement of any credit allocation system but turning it into labeled classes leads to problems in performance measurement. In this paper the connection between the probability of default and optimal credit allocation is established through a conceptual construct called the Kelly criterion. Conflicting performance measures in dichotomous classification are replaced with coherent criteria for judging the performance of credit allocation decisions. Extensive testing on peer-to-peer lending data shows that the Kelly strategy enables consistent outperformance and efficiency in processing information relative to alternative credit allocation approaches. [ABSTRACT FROM AUTHOR]
- Subjects :
- CREDIT control
PEER-to-peer lending
INFORMATION processing
DEFAULT (Finance)
Subjects
Details
- Language :
- English
- ISSN :
- 19118066
- Volume :
- 14
- Issue :
- 9
- Database :
- Complementary Index
- Journal :
- Journal of Risk & Financial Management
- Publication Type :
- Academic Journal
- Accession number :
- 152720133
- Full Text :
- https://doi.org/10.3390/jrfm14090434