Profitability of Maskan Bank Credit Cards: Markov Decision Process

Document Type : applied

Authors

1 Assistant Prof. Iran Banking Institute, Central Bank of Iran, Tehran, Iran

2 MSc., Banking, Iran Banking Institute, Central Bank of Iran, Tehran, Iran

Abstract

Credit card is one of the most profitable instrument in almost every banking system. Indeed, the widely use of credit cards, during the last three decades, among consumers and businessman's is a sign of this claim. Thus, the profitability of credit cards of bank maskan is studied, in this paper. This paper considers an application of Bellman equation in determing the credit card caps. Under a Markov decision process (MDP) setting, the transition matrix are computed and they are used in Bellman equation. The time period of study is the starting day of 2011 to the last day of 2012. To this aim, first, using the Markov chain process, the transition probability matrix of consumers who have credit cards is computed, using their behavior score and after that the added value induced by consumers is calculated. This matrix is useful in determining the optimal policy of credit cards caps. Finally, by using the MDP, a suitable policy is chosen regarding the change of credit cards caps.
JEL: C61; C65
How to cite this paper: Habibi, R., Kouhi, H., & Shamani, M. (2016). Profitability of Maskan Bank Credit Cards: Markov Decision Process. Quarterly Journal of Risk Modeling and Financial Engineering, 1(1), 58–75. (In Persian)

Keywords

Main Subjects

References

Adeli, M. (2001). Optimal Making Decision in Dynamic Models in Uncertain Environment. Unpublished Thesis. Khajeh Nasir Toosi University. (In Persian).
Bellman, R. E. (1957). Dynamic Programming. Princeton University Press.
Bierman, H., & Hausman, W. H. (1970). The Credit Granting Decision. Management Science, )16), 519–532.
Butaru, F., Chen, Q., Clark, B., Das, S., Lo, A. W., & Siddique, A. (2014). Risk and Risk Management in the Credit Card Industry. Technical Report. U.S. Department of the Treasury, Office of the Comptroller of the Currency, Enterprise Risk Analysis Division.
Gholampoor, N. (2014). Kish Credit Card and Sequential Volatilities in Profitability. Forsat Emrooz, 35(1), 1-2. (In Persian).
Habibi Fard, N. (2013). Using the MCMC Method in Stochastic Volatility Models. Unpublished Thesis. Department of Economics. Allameh Tabatabai University. (In Persian).
Hadad Asl, A., & Dehghani, Sh. (2007). Surveying the Credit Cards Risk and Compensations Methods. The 4th International Electronic Trade, Tehran, Iran, 1-9. (In Persian).
 Howard, R. A. (1960). Dynamic Programming and Markov Processes. MIT Press.
Khansari, R. (2016). Opportunities and Challenges about the International Credit Cards in Iran Banking System. Technical Report. Monetary and Banking Research Institute. Central Bank of Iran. (In Persian).
Mehrabi, M. (2011). Operational Instructions for Credit Card According to the Murabehe Contracts. Tazehay-e-Eqtesad, 9(1), 47-50. (In Persian).
 Moosavian, A. (2007). Designing the Credit Cards in Islamic banking System According to the Murabehe contracts. Islamic Economy, 28(1), 117-137. (In Persian).
Salahshori, R., Khosro Abadi, A., & Masoomi Andi, M. (2016). Designing the Reliability and Profitability Strategies of Samin Credit Card Using the SWOT Model. 2th International Conference about Management and Accounting. 1-10. (In Persian).
 So, M., & Lyn, T. (2011). Modeling the Profitability of the Credit Cards by Markov Decision Processes. European Journal of Operational Research, 7(1), 123- 130.
Trench, M. S., Pederson, S. P., Lau, E. T., Ma, L., Wang, H., & Nair, S. K. (2003). Managing Credit Lines and Prices for Bank One Credit Cards. Interfaces, 33(1), 4–21.
Wang, Y. F., Cheng, S., & Hsu, M. H. (2010). Incorporating the Markov Chain Concept in to Fuzzy Stochastic Prediction of Stock Indexes. Applied Soft Computing, 10(1), 613-617.
Wozabal, D., & Hochreiter, R. (2016). A Coupled Markov Chain Approach to Credit Risk Modeling. To appear in Journal of Economic Dynamics and Control.
Journal of Risk modeling and Financial Engineering
Volume 1, Issue 1 - Serial Number 1
September 2016
Pages 58-75

Files

Share

How to cite

Statistics