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Recommendation of investment portfolio for peer-to-peer lending with additional consideration of bidding period

  • S.I.: Business Analytics and Operations Research
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Abstract

Peer-to-peer (P2P) lending has emerged as an alternative method of financing. Keeping pace with this development, many P2P lending studies have provided approaches to select investment portfolios for individual lenders. However, none of these approaches consider how long it takes for an individual loan to be fully funded so as to reduce the opportunity cost incurred due to delayed investment. In this paper, we propose a goal programming framework to develop an optimal P2P lending portfolio that considers not only the expected returns but also this opportunity cost for individual investors. First, for each loan proposal, a logistic regression model is used to predict the loan default probability while a Weibull regression is used to determine the opportunity cost incurred due to the time taken to obtain the loan. Next, goal programming is applied to construct a portfolio that minimizes the slack from the desired return on investment as well as the surplus from the preset opportunity cost due to a prolonged bidding period. The proposed approach is then applied to Prosper platform data and is expected to help investors’ portfolio decisions in the P2P lending market.

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taken from loan application to loan execution (unit: day)

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Acknowledgements

This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT) (2020R1A2C2005026).

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  1. Yonsei University, Seoul, Republic of Korea

    Ki Taek Park, Hyejeong Yang & So Young Sohn

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  1. Ki Taek Park
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Correspondence to So Young Sohn.

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Appendix

Appendix

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Table 7 Variable Definitions of Prosper Loan Data
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7 and

Table 8 Descriptive statistics of the variables
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8.

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Park, K.T., Yang, H. & Sohn, S.Y. Recommendation of investment portfolio for peer-to-peer lending with additional consideration of bidding period. Ann Oper Res 315, 1083–1105 (2022). https://doi.org/10.1007/s10479-021-04300-z

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