Instruments for credit risk transfer arise endogenously from and interact with optimizing behavior of their users. This is particularly true with credit derivatives which are usually OTC contracts between banks as buyers and sellers of credit risk. Recent literature, however, does not account for this fact when analyzing the effects of these instruments on banking. The present paper closes this...

In credit card portfolio management, predicting the cardholder’s spending behavior is a key to reduce the risk of bankruptcy. Given a set of attributes for major aspects of credit cardholders and predefined classes for spending behaviors, this paper proposes a classification model by using multiple criteria linear programming to discover behavior patterns of credit cardholders. It shows a gener...

For some time, the Board of Governors of the Federal Reserve System has sought to obtain more detailed and timely information on the debt status, loan payment behavior, and overall credit quality of U.S. consumers. Such information could facilitate the Board's analysis of macroeconomic conditions, improve its understanding of the way credit is provided to consumers, and enhance the System's sup...

We propose a theory of credit lines provided by banks to firms as a form of monitored liquidity insurance. Bank monitoring and resulting revocations help control illiquidityseeking behavior of firms insured by credit lines. The cost of credit lines is thus greater for firms with high liquidity risk, which in turn are likely to use cash instead of credit lines. We test this implication for corpo...

Credit card fraud costs consumers and the financial industry billions of dollars annually. However, there is a dearth of published literature on credit card fraud detection. In this study we employed transaction aggregation strategy to detect credit card fraud. We aggregated transactions to capture consumer buying behavior prior to each transaction and used these aggregations for model estimati...

Credit granting businesses face a challenging environment due to the wide variety of customer behaviors. While only some customers use their credit and pay regularly, a larger percentage may hardly use their available credit. As a key risk management issue, small percentages of customers become delinquent in their payments, and others become bankrupt, requiring write-off. As a business decides ...

Using a unique panel data set from a U.K. credit card company, we analyze the interest rate sensitivity of subprime credit card borrowers. In addition to all individual transactions and loan terms, we have access to details of a randomized interest rate experiment conducted by the lender on existing (inframarginal) loans. For the whole sample, we estimate a statistically significant £3.4 reduct...