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.
|Issue number||12 December|
|Publication status||Published - 2021 Dec|
Bibliographical noteFunding Information:
This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT) (2020R1A2C2005026). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.
© 2021 Lee, Sohn. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
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