Decision Science in Action

Modeling Practices of Loss Forecasting for Consumer Banking Portfolio Roll Rate Models The roll rate model is the most commonly used modeling practice for the loss forecasting in the consumer banking arena built at the portfolio level instead of at the individual account level. In this modeling practice, the whole portfolio is segmented by various delinquency buckets, e.g. Current, 30-DPD, 60-DPD, 90-DPD, 120-DPD, 150-DPD, and charge-off. The purpose is to evaluate the probability of an account in a specific delinquency bucket flowing into the next stage of delinquency status during the course of 1 month. The table below demonstrates the scheme of a basic roll rate model. In the table below, projected rolling rates are shown in the bottom two rows highlighted in red. The projected rate for each delinquency bucket is simply the moving average of previous 3 months. Due to its nature of simplicity, the roll rate model is able to fit into various business scenarios, e.g. d...

There are multiple OR packages to solve the optimization problems at academic as well as industry levels. One of the best OR packages that I am using is the SAS OR package. It has a capability to model highly complex problems and program it if required. Most of the optimization algorithms have been implemented on SAS.  In SAS we call Procedure to any function. There are many procedures which are SAS implementation of the OR algorithms. But there is a procedure called Proc Opt Model using which we can call different algorithms to solve any optimization problems. We can write  programs also inside it implement some constraints which can not be directly coded. I think this is very powerful tool for an operational research analyst. I use this procedure to model the business problems. I learnt it myself by going through user documentation. The SAS document explains clearly how can we use SAS OR packages with examples. In fact all the examples given in the HP Williams Model Buildin...