Title: Credibility models with dependence induced by common effects and their applications in bank branch performance prediction

Authors: Mahdi Ebrahimzadeh, Noor Akma Ibrahim, Abdul Aziz Jemain, Adem Kilicman

Addresses: Institute for Mathematical Research, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia. ' Institute for Mathematical Research, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia. ' School of Mathematical Sciences, Faculty of Science and Technology, Universiti Kebangsaan Malaysia, 43600 UKM Bangi, Selangor, Malaysia. ' Department of Mathematics, Faculty of Science, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia

Abstract: One of the important issues in banking affairs is to predict performance of bank branches. While we know some of the factors that influence predicted performance, some unobservable factors called |error| or |latent and unobservable variables| in statistics, always exert some effect on prediction. In this paper, for the first time in studies on prediction of performance of bank branches, we use credibility theory to model the effects of unobservable factors induced by |common effects|. The models are then used to predict expected performance for a number of branches given the history of all observable performances. We give illustrative example to demonstrate the ideas.

Keywords: credibility theory; modelling; common effects; performance prediction; business development; banking industry; bank performance; bank branches.

DOI: 10.1504/JIBED.2011.042388

Journal for International Business and Entrepreneurship Development, 2011 Vol.5 No.4, pp.339 - 350

Published online: 28 Feb 2015 *

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