Mathematical Modeling of the Interest Rates Formation on Consumer Loans in Russia

We present the model for the formation of interest rates on consumer loans based on an analysis of commercial interests and the logic of behavior of commercial banks. From the position of the commercial banks, the borrowers’ income is a stochastic process described by a geometric Brownian motion. The commercial banks assess the default risk of borrowers. The consumer loan demand is described with the help of representative rational consumer behavior based on Ramsey-type model. The historical data of the interest rates on loans are identified.