Robert L Phillips

Pricing Credit Products

• Gebundenes Buch

Produktbeschreibung

Robert L. Phillips is Director of Pricing Research at Amazon. He was Director of Marketplace Optimization Data Science at Uber Technologies, Professor of Professional Practice at the Columbia Business School and Founder and Chief Science Officer at Nomis Solutions. He is the author of the award-winning Pricing and Revenue Optimization (Stanford, 2005) and the co-editor of The Oxford Handbook of Pricing Management (2014).

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Produktdetails

• Verlag: Stanford University Press
• Seitenzahl: 256
• Erscheinungstermin: 10. Juli 2018
• Englisch
• Abmessung: 256mm x 181mm x 20mm
• Gewicht: 632g
• ISBN-13: 9780804787208
• ISBN-10: 0804787204
• Artikelnr.: 48855306

Autorenporträt

Robert L. Phillips is Director of Pricing Research at Amazon. He was Director of Marketplace Optimization Data Science at Uber Technologies, Professor of Professional Practice at the Columbia Business School and Founder and Chief Science Officer at Nomis Solutions. He is the author of the award-winning Pricing and Revenue Optimization (Stanford, 2005) and the co-editor of The Oxford Handbook of Pricing Management (2014).

Inhaltsangabe

Contents and Abstracts
Introduction
chapter abstract
This chapter motivates the book. It argues that lenders are ideally placed
to perform price optimization because of their access to deep information
about their customers and transactions. However, for historical reasons,
lenders have lagged retailers, particularly online retailers, in their
adoption of price optimization. More widespread adoption of price
optimization among lenders would not only improve their business
performance but also might help prevent a repeat of the 2008 financial
crisis.
1The Consumer Credit Market
chapter abstract
Credit is available to consumers in a wide range of forms, under a wide
range of terms, and from a variety of institutions. This chapter describes
the most important forms of consumer credit in different countries and the
various institutions that offer credit. It begins with a brief history of
consumer credit. This history is needed to understand some of the
peculiarities of the present-day consumer credit markets and variation
among countries. This chapter also describes the different processes used
by lenders to compute and quote prices to consumers.
2Credit Risk
chapter abstract
Risk is one of the defining characteristics of credit, and every lender
needs to understand loan risk and how it interacts with pricing. This
chapter discusses the sources of credit risk and how they can be measured.
It shows how credit scores can measure risk and how they can be calculated
using historical data. It also shows how differential price sensitivity by
risk tier leads to price-dependent risk.
3Incremental Loan Profitability
chapter abstract
A key component of price optimization in lending is understanding how the
profitability of a loan will change as a function of the price. This
requires careful accounting of how various elements of loan cost and
revenue will be realized over time and how the risks of default and
repayment influence these streams. This chapter discusses each element of
incremental loan profitability and how they can be calculated. It shows how
each of these elements varies with the price and other characteristics of
the loan. These calculations are performed in detail for an example simple
loan and then extended to more complex loan structures. This chapter also
discusses risk aversion and argues that a lender with a large portfolio of
loans should act risk-neutral in evaluating and pricing individual loans.
4The Fundamentals of Price Response
chapter abstract
This chapter provides a brief review of the basics of consumer price
response. It shows how a price-response function for a loan is the result
of the variation of willingness to pay across the population. Different
distributions of willingness to pay give rise to different price-response
functions. The price sensitivity for a loan at a particular price can be
measured by the slope, hazard rate, or elasticity of the price-response
curve at that point.
5Estimating Price Response
chapter abstract
One of the key steps in price optimization is estimating the price-response
curves associated with different pricing segments. There are a number of
techniques for doing this using historical data. The chapter describes the
process in detail using logistic regression applied to a data set derived
from an online auto lender. Different approaches to estimating price
response derived from the field of machine learning are discussed. The
chapter concludes with a discussion of the use of data-free approaches such
as conjoint analysis and surveys when historical price response data is not
available.
6Pricing Segmentation
chapter abstract
This chapter discusses how price-response differs among different types of
customer for different types of loans offered through different channels
and how transactions can be segmented in order to take advantage of these
differences by charging a different price to each segment. The chapter
gives an overview of the economic theory behind pricing segmentation and
also shows how superior pricing segmentation can provide a strategic
advantage for a lender.
7Optimizing Prices
chapter abstract
This chapter describes how the price-optimization problem can be formulated
and solved. It starts by deriving the profit and revenue maximizing
conditions for a single simple loan with and without price-dependent risk.
It then extends the discussion to the case of price-dependent risk and the
case of multiple loans for many different pricing segments. In most cases,
lenders impose constraints on the prices. This means that finding the set
of prices that best meets the business goal of the lender while
simultaneously satisfying all of the constraints is a problem of
constrained nonlinear optimization. The chapter discusses the issues of
infeasibility and multiple solutions that can arise in such a problem.
Finally, it discusses how an efficient frontier can be used to visualize
the tradeoffs between two different business objectives.
8Behavioral Economics and Credit Pricing
chapter abstract
Price optimization typically assumes (often implicitly) that consumers are
rational in the sense that they make perfect financial decisions
appropriately evaluating all options against their preferences. However,
both experience and academic research shows that consumers often behave in
ways that are far from rational. These deviations from rationality include
the use of such heuristics as mental accounting and debt account aversion
along with time-inconsistent preferences. This chapter discusses the
implications of such deviations from rationality for loan pricing and for
regulations.