# Tag Info

8

According to Frank Harrell's useR2010 keynote on Information Allergy: Never. Edit: And here is a long list of reasons why one should not categorize continuous variables (which is the same thing, but expressed in more statistical terms). And for completeness, here is Andrew Gelman debating the issue some more.

7

The issues pointed out in the various footnotes and references here do not seem to address this issue. There are numerous situations where detailed intelligent binning is not only appropriate, but adds value to the model. Let's break it down to the basics, which is that in a digital world every thing is categorical. We never measure AGE down to the second, ...

4

This is what Moody's does to calculate default probabilities, but I don't believe they give a whole lot of detail on their exact methodology because they sell their models as software. I quickly found this which gives a brief overview: http://www.moodysanalytics.com/~/media/Brochures/Enterprise-Risk-Solutions/RiskCalc/RiskCalcPlus-Fact-Sheet.ashx Edit- ...

4

If you don't have a significant amount of losses in your portfolio to validate the model, you should be able to obtain external loss data and adjust it where necessary to better fit your organization. This is very common with operational loss models where operational losses are quite scarce.

4

The best model used by practitioners to model consumer credit is the logistic regression model; now, you said that you tried modelling by using logistic model without success, but I want trying to suggest you the step-by-step procedure I would use in such case. To model consumer credit, I'd follow the following procedure: Sample Analysis: I analyze the ...

3

Most of the papers concern CDS spreads which you will need to convert to a PD. Paper using country specific fundamentals: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2517018 This paper uses leverage: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2361872 Another one that decomposes them against peer groups: ...

2

"One of the attractive features of the logistic function is the fact that it is bounded between 0 and 1, making it suitable to represent probabilities. " "The Poisson intensity model introduced in this article still has serious shortcomings despite the major advancement offered by its dynamic features. First, it is known to be unable to properly capture the ...

2

Have you looked at the bivariate probit model at all? Bivariate probit model with sample selection assumes that the distribution of the accepted applicant population is different from that of the rejected applicant population. That is, it is assumed that $P(default|X, rejected) \neq P(default|X, accepted)$ for some vector of ...

2

I do not know the regulatory rules for this case, but methodologically you could take another similar dataset "peer data" and then check how correctly your model predicts the losses of this dataset.

2

I am also not aware of any papers in this area. But having developed many such models, I can list the important steps: Decide on the target variable: usual choices are historical default data, agency ratings and expert rankings Create a sample containing the possible predictors Reduce the list with the help of some expert, e.g. exclude all the predictors ...

1

If you do have some positive examples to estimate your model from, then, technically, you are dealing with the task of one-class classification (a.k.a anomaly detection, also directly related to density estimation). In your case the "anomalies" are high-risk customers, not present in the data. Various methods exist for anomaly detection and density ...

1

I suggest you to start from the Altman's model, that is the basic model to implement the kind of econometric analysis you're looking for. You can find the original paper at my Dropbox public folder. After that reading, you can find a number of paper about scoring models on SSRN or Google Scholar. Moreover, I suggest you to look for all academic papers that ...

1

Bloomberg has a Default Risk model, which is similar to what you are querying. You can see a screenshot in this PDF. There you can also see the kind of variables they use. You can access it by typing DRSK at the CDS screen is Bloomberg. (If the screenshot in the PDF is not clear enough, let me know and I can post one with better resolution from Bbg) This ...

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