Proposed Project for the MSU Industrial Math Students

Auto Loan Approval Volume Model and Take up Rate Model

Background: Price revenue management is increasingly being employed in the financial industry to set interest rates and terms for consumer loans. A successful revenue management program optimizes price (interest rate) by formally incorporating the behavioral response of consumers into the pricing decision. The goal is to establish the optimal trade-offs between volumes and return, while at the same time achieving company objectives for portfolio risk and composition. Accurate and robust volume response models are critical to portfolio optimization, but they present an ongoing challenge in practice as economic and competitive conditions can change rapidly in the marketplace.

Project: The project can be broken into two parts: the forecast of number of the approved auto finance application and the take up rate of approved auto finance application as a function of the rates that are offered. These models will be implemented in an optimization tool that will recommend optimal rate sheet rates.

Various model forms and analytical techniques should be investigated and evaluated. (For example modeling can be done at either the aggregate or the contract level, explore various explanatory variables including macro economic variables, seasonality adjustment, etc.)

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