Application of Nonstationary Markovian Models to Risk Management in Automobile Leasing

  • D. L. Smith
  • Y. Wu
  • D. Matthew
Chapter
Part of the Applied Optimization book series (APOP, volume 45)

Abstract

Automobile leasing is a growing and competitive business in which the lessor absorbs the risk of fluctuations in used-car prices, in addition to normal credit risks. To explore the various dimensions of risk in automobile leasing, we construct a set of integrated statistical models using account-level data from a major U.S. financial institution. Nonstationary Markovian models represent the life of a lease. A dozen logistic and regression models represent alternative paths on termination. We describe the comprehensive model and its validation, demonstrate its utility for management of credit risk, and provide new understanding about the character of the credit instrument.

Key words

Risk management Forecasting Credit Leasing Nonstationary Markov chains 
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Copyright information

© Springer Science+Business Media Dordrecht 2000

Authors and Affiliations

  • D. L. Smith
    • 1
  • Y. Wu
    • 1
  • D. Matthew
    • 1
  1. 1.School of Business AdministrationUniversity of Missouri-St. LouisSt. LouisUSA

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