Profit Assessment For Investment Portfolio In P2P Lending

P2P lending has attracted a lot of attention in recent years due to its novel mode and rapid development.For investors,the considerable profitability of P2P lending and the diversity of investment choices are important factors in attracting their investment.Since investors often do not have the expertise to identify loans in P2P lending,and it is difficult for them to construct complex investment portfolios,the evaluation of loans and the construction of investment strategies have become important issues for many researchers.In this paper,we consider the perspective of meeting the profit needs of investors,and evaluates the profit of loans.Also,we do not only evaluate the profit of P2P loans.We propose a portfolio model based on profit scoring to help investors get more stable return.In this paper,we use the random forest algorithm,which performs well in forecasting problems,to build profit scoring model.We set the loans' information as the independent variable,and the loans' profit as the dependent variable,and build a regression model to predict the profit of the loans.After that,according to the modern portfolio theory,we build a mean-variance model,which transfers the problem of building a portfolio into a nonlinear optimization problem with constraints.Using this model,investors can select loans with high profitability,and determine the allocation of investment funds in P2P loans,so as to get a more stable return which meet their needs of profit.We select the data from Lending Club to validate our proposed model.The result shows that,compared with the hierarchical mechanism which is widely used by the P2P platform and the traditional multiple regression method,random forest has a better performance in predicting the loans' profitability.We build a portfolio model based on the grade of the loans to compare with the portfolio model based on profit scoring,which we proposed in this article.The result shows that,the model we proposed in this article can meet the investors' needs of profit,especially the medium to high level of profit demand.And also,the proposed model can help the investors to get more stable return.Different from previous studies,which focus on credit risk assessment in P2P lending,we focus on the profit needs of investors,and explore the method of profit scoring.We also explore the method of building portfolio model based on profit scoring,which help investors in selecting loans and allocating funds.Nowadays,the P2P lending platforms are trying to develop tools to help investors make better investment choices.The portfolio model based on profit scoring,which is proposed in this article,has some reference value for the P2P platforms.