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Credit Management and Markov Chains: Partial Balance Aging Method

  • Kenneth P. Gee
Chapter

Abstract

1. Represent the actual partial balance age structure of debts at the end of month j as I j , and within I j refer to the kth element as i j,k where k = P,B,3,4,5,6,7 corresponds respectively to states P,B,0,1,2,3,4. Here states 0–4 refer to the five states of a debt from ‘less than 1 month old’ (state 0) to ‘over 4 months old’ (state 4). Refer to October as month j = 1, November as j = 2 and December as j = 3. Then the transition probabilities of payment t kP are as follows for k = 3…5 and j = 1…3.

k

Col.1 i 1,k

 

Col.2 i 2,k+1

Col.3 Paid

 

t kP = Col. 3/Col. 1

3

511401

79261

=

432140

0.845

4

94853

55212

=

39641

0.418

5

53711

12471

=

41240

0.768

 

i 2.k

 

i 3,k+1

   

3

662666

103722

=

558944

0.844

4

79261

43685

=

35576

0.449

5

55212

42433

=

12779

0.231

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Copyright information

© Kenneth P. Gee 1986

Authors and Affiliations

  • Kenneth P. Gee
    • 1
  1. 1.Department of Business and AdministrationUniversity of SalfordUK

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