Sample selection bias in non-traditional lending : a copula-based approach for imbalanced data
License
Access Rights
Cadmus Permanent Link
Full-text via DOI
ISBN
ISSN
1873-6041; 0038-0121
Issue Date
Type of Publication
Keyword(s)
LC Subject Heading
Other Topic(s)
EUI Research Cluster(s)
Initial version
Published version
Succeeding version
Preceding version
Published version part
Earlier different version
Initial format
Citation
Socio-economic planning sciences, 2024, Vol. 95, Art. 102045, OnlineOnly
Cite
CALABRESE, Raffaella, OSMETTI, Silvia Angela, ZANIN, Luca, Sample selection bias in non-traditional lending : a copula-based approach for imbalanced data, Socio-economic planning sciences, 2024, Vol. 95, Art. 102045, OnlineOnly - https://hdl.handle.net/1814/77942
Abstract
Credit scoring models for non-traditional lending channels, such as peer-to-peer (P2P) lending platforms, are usually estimated only on the sample of accepted applicants. This may lead to biased estimates of the risk drivers. This issue can be addressed using a reject inference technique that includes the characteristics of rejected applicants in the model. Due to the low numbers of accepted applicants and default records, credit scoring models usually face a class imbalance problem. However, previous literature on sample selection models for credit scoring does not address the class imbalance issue. To fill this gap, we extend the Generalised Extreme Value (GEV) regression model for binary data to the sample selection framework. We consider the quantile function of the GEV distribution as a link function in both the selection and outcome equations. We use the copula function to model the dependence structure between the two equations for its flexibility. This proposal is called the Sample Selection Generalised Extreme Value (SSGEV) model and it is implemented in the R package BivGEV. We apply this model to a comprehensive dataset provided by Lending Club, and we show that parameter estimates obtained only on accepted P2P applicants are biased and coherently with the literature. The SSGEV model achieves a higher predictive accuracy than those obtained using univariate approaches or a sample selection probit model. Our proposal also provides more conservative estimates of the Value-at-Risk and the Expected Shortfall.
Table of Contents
Additional Information
Published online: 29 August 2024