We present a model of credit card profitability, assuming that the card-holder always pays the full outstanding balance. The motivation for the model is to calculate an optimal credit limit, which requires an expression for the expected outstanding balance. We derive its Laplace transform, assuming that purchases are made according to a marked point process and that there is a simplified balance control policy in place to prevent the credit limit being exceeded.
We calculate optimal limits for a compound Poisson process example and show that the optimal limit scales with the distribution of the purchasing process and that the probability of exceeding the optimal limit remains constant.
Furthermore, we establish a connection with the classic newsvendor model and use this to calculate bounds on the optimal limit for a more complicated balance control policy.
Joint work with Jonathan Budd.
How to participate in this seminar:
1. Book your nearest ACE facility;
2. Notify Vera Roshchina at RMIT (maths.colloquia@rmit.edu.au) to notify you will be participating.
No access to an ACE facility? Contact Maaike Wienk to arrange a temporary Visimeet licence for remote access (limited number of licences available – first come first serve)