Evaluating borrowers’ default risk with a spatial probit model reflecting the distance in their relational network
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Potential relationship among loan applicants can provide valuable information for evaluating default risk. However, most of the existing credit scoring models either ignore this relationship or consider a simple connection information. This study assesses the applicants’ relation in terms of their distance estimated based on their characteristics. This information is then utilized in a proposed spatial probit model to reflect the different degree of borrowers’ relation on the default prediction of loan applicant. We apply this method to peer-to-peer Lending Club Loan data. Empirical results show that the consideration of information on the spatial autocorrelation among loan applicants can provide high predictive power for defaults.
2019 ◽
Vol 9
(3)
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pp. 8-22
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2018 ◽
Vol 6
(3)
◽
pp. 67
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2016 ◽
Vol 5
(3)
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pp. 61-78
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