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Indexed by:期刊论文

Date of Publication:2019-01-01

Journal:MATHEMATICAL PROBLEMS IN ENGINEERING

Included Journals:SCIE、SSCI、Scopus

Volume:2019

ISSN No.:1024-123X

Key Words:Costs; Financial data processing; Risk assessment; Risk perception, Credit risk assessment; Historical observation; Investment decisions; Investment performance; Optimization problems; Portfolio optimization; Relative entropy constraints; Relative entropy method, Investments

Abstract:Peer-to-Peer (P2P) lending has attracted increasing attention recently. As an emerging micro-finance platform, P2P lending plays roles in removing intermediaries, reducing transaction costs, and increasing the benefits of both borrowers and lenders. However, for the P2P lending investment, there are two major challenges, the deficiency of loans' historical observations about the certain borrower and the ambiguity problem of estimated loans' distribution. In order to solve the difficulties, this paper proposes a data-driven robust model of portfolio optimization with relative entropy constraints based on an instance-based credit risk assessment framework. The model exploits a nonparametric kernel approach to estimate P2P loans' expected return and risk under the condition that the historical data of the same borrower is unavailable. Furthermore, we construct a robust mean-variance optimization problem based on relative entropy method for P2P loan investment decision. Using the real-world dataset from a notable P2P lending platform, Prosper, we validate the proposed model. Empirical results reveal that our model provides better investment performances than the existing model.