METHOD AND APPARATUS FOR MODELING ECONOMIC CONDITIONS AS APPLIED TO MULTIPLE RISK GRADES
First Claim
1. A computerized method comprising:
- scoring a plurality of loans;
banding the plurality of loans into risk pools on the basis of the scores associated with the plurality of loans;
modeling the log odds associated with a plurality of loan scores as a linear function of the loan score wherein the y-intercept and slope accounts for changes, including economic changes, that effect the natural log of the odds;
fitting the log of the odds to loan score relationship at several points in time, to obtain intercept and slope statistics at each point in time;
producing models of the how the slope and y-intercept change with regard to economic conditions;
predicting the odds in a plurality of risk pools under any current or assumed future economic conditions using the predicted slope and intercept and the log odds to score relationship; and
setting a reserve level for a plurality of risk pools using the predicted log odds to score relationship.
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Abstract
A computerized method includes scoring a plurality of loans, and banding the plurality of loans into risk pools on the basis of the scores associated with the plurality of loans. The computerized method also includes modeling a change in y-intercept and slope of the natural log of the odds to the loan scores relationship, using that predicted log odds to calculate the probability of default for the plurality of risk pools over time as a function of a set of macro-economic data. A machine readable medium provides instructions that, when executed by a machine, cause the machine to perform the above on a system for determining an amount of capital to hold in reserve for a plurality of loan risk pools and to set strategies for managing risk for a plurality of risk pools.
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Citations
22 Claims
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1. A computerized method comprising:
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scoring a plurality of loans; banding the plurality of loans into risk pools on the basis of the scores associated with the plurality of loans; modeling the log odds associated with a plurality of loan scores as a linear function of the loan score wherein the y-intercept and slope accounts for changes, including economic changes, that effect the natural log of the odds; fitting the log of the odds to loan score relationship at several points in time, to obtain intercept and slope statistics at each point in time; producing models of the how the slope and y-intercept change with regard to economic conditions; predicting the odds in a plurality of risk pools under any current or assumed future economic conditions using the predicted slope and intercept and the log odds to score relationship; and setting a reserve level for a plurality of risk pools using the predicted log odds to score relationship. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11)
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12. A machine readable medium that provides instructions that, when executed by a machine, cause the machine to:
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score a plurality of loans; band the plurality of loans into risk pools on the basis of the scores associated with the plurality of loans; model the log odds associated with a plurality of loan scores as a linear function of the loan score wherein the y-intercept and slope accounts for changes, including economic changes, that effect the natural log of the odds; fit the log of the odds to loan score relationship at several points in time, to obtain intercept and slope statistics at each point in time; produce models of the how the slope and y-intercept change with regard to economic conditions; predict the odds in a plurality of risk pools under any current or assumed future economic conditions using the predicted slope and intercept and the log odds to score relationship; and set a reserve level for a plurality of risk pools using the predicted log odds to score relationship. - View Dependent Claims (13, 14, 15, 16)
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17. A system for determining an amount of capital to hold in reserve for a plurality of loan risk pools, the system comprising:
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a first model component for modeling the log odds associated with the plurality of loan scores as a linear function of the loan scores, the y-intercept and slope of the linear function accounting for changes, including economic changes, that effect the natural log of the odds; a second model component for producing a model of the change in intercept and slope over time as a function of a set of macro-economic data; a fit component for fitting the log of the odds to loan score relationship at several points in time, to obtain intercept and slope statistics at each point in time; and a prediction component for predicting the odds in a plurality of risk pools under current or future predicted economic conditions using the predicted intercept and slope and the odds to score relationship; and a reserve level component for setting a reserve level for at least one risk pool. - View Dependent Claims (18)
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19. A computerized method comprising:
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scoring a plurality of loans; banding the plurality of loans into risk pools on the basis of the scores associated with the plurality of loans; modeling the log odds associated with a plurality of loan scores as a linear function of the loan score wherein the y-intercept and slope accounts for changes, including economic changes, that effect the natural log of the odds; fitting the log of the odds to loan score relationship at several points in time, to obtain intercept and slope statistics at each point in time; producing models of the how the slope and y-intercept change with regard to economic conditions; predicting the odds in a plurality of risk pools under any current or assumed future economic conditions using the predicted slope and intercept and the log odds to score relationship; and using the predicted log odds to make strategic portfolio decisions. - View Dependent Claims (20, 21, 22)
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Specification