Bank of America Corporation

Ruilong He

Naveen Gururaja Yeri

Agus Sudjianto

William Anthony Nobili

Arun Pinto

Timothy John Breault

Aijun Zhang

Benhong Zhang

Zhe Zhang

Meghan Alita Steach

Elaine C Marino

Ulrich A Bruns

John Delmonico

Shelly X Ennis

Glenn B Jones

WeiCheng Liu

Shuchun Wang

Hungjen Wang

A data driven and forward looking risk and reward appetite methodology for consumer and small business is described. The methodology includes customer segmentation to create pools of homogeneous assets in terms of revenue and loss characteristics, forward looking simulation to forecast expected values and volatilities of revenue and loss, and risk and reward optimization of the portfolio. One methodology used for modeling revenue and loss is a generalized additive effect decomposition model to fit historical data. Based on the model, a segmentation procedure is performed, which allows for creation of groups of customers with similar revenue and loss characteristics. An estimation procedure for the model is developed and a simulation strategy to forecast and simulate revenue and loss volatility is developed. Efficient frontier curves of risk (e.g., return volatility) and reward (e.g., expected return) are created for the current portfolio under various economic scenarios.

Risk and reward assessment mechanism

Growing community of inventors

Charlotte, NC, United States of America

Ruilong He