Author Topic: Expected Return  (Read 3568 times)

Emmanuel

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Expected Return
« on: May 28, 2014, 03:14:35 PM »
For those interested in how we predict how much a loan will return, here is a detailed explanation of our method:

http://blog.lendingrobot.com/post/87123011616/

Fred

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Re: Expected Return
« Reply #1 on: May 28, 2014, 05:57:27 PM »
I find it interesting that you use "Number of Payments" as a proxy for Returns, which caused a number of interesting assumptions, such as:

Quote
For the sake of simplicity, we will also consider that loans that were paid-back early have been fully paid at maturity only.

Shouldn't "Payment Received" be a more natural proxy?

Emmanuel

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Re: Expected Return
« Reply #2 on: May 28, 2014, 06:54:00 PM »
Shouldn't "Payment Received" be a more natural proxy?

Yes, it's a more natural proxy. However, the model we use focuses on the survival curve, the interest of which will become apparent in a future post. Taking into account a full repayment is roughly similar to using a payment ratio of 1.0 (i.e., a 14% interest rate, 36-month loans that is repaid on the 12th month has an IRR of 14.4% versus 14.1% if it reached maturity.