Credit Price Optimization
Dr. Robert Phillips
CTO, Nomis Solutions
Lenders such as banks have become highly sophisticated in calculating the default risk of possible loans. Lenders have been less sophisticated in understanding how customers respond to the prices of their offerings. This presentation describes an approach to optimizing prices for consumer credit in the case in which the seller has the option to set different prices to different customers depending on combinations of customer characteristic, product, and channel. The optimal price for a loan is one that trades off customer response and product profitability to maximize expected total return for each customer. Broadly speaking, this is a problem of optimal customized pricing. However, credit has a number of unique characteristics including the existence of adverse selection that pose specific modeling and optimization challenges. This presentation describes a methodology for optimizing consumer credit prices as well as two case studies: auto lending and unsecured consumer lending.
Dr. Robert L.
Phillips is founder and chief technology officer of Nomis
Solutions, a company providing pricing and revenue optimization solutions to
the financial services industry. Prior to founding Nomis,
Dr. Phillips served as chief technology officer of Manugistics
(NASDAQ: MANU) and as founder and chief executive officer of Talus Solutions, a
pricing and revenue optimization company.
Prior to that he was chief executive officer at
Decision Focus Incorporated, a quantitative consulting firm.
Dr. Phillips is a recognized expert in pricing and revenue
optimization. He was the chief architect
of the Talus Solutions pricing and revenue optimization software suite. He pioneered the application of pricing and
revenue optimization in many different industries including passenger airlines,
cruise lines, rental cars, automotive, hotels, air cargo, trucking, container
shipping, and financial services. He has
been a visiting professor at the Columbia University Graduate School of
Business and currently teaches a course in Pricing and Revenue Optimization at
the
Dr. Phillips holds a Ph.D. in Engineering-Economic Systems
from