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Mapping ordinal data to interval data is arbitrarily. The ranking of rating agencies is ordinal data, so only comparing operators > or < can be applied. The data can be sorted and as a central tendency, you can calculate the median. The main aspect of ordinal data is that it allows for rank order but it does not allow for the relative degree of ...

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Yes, you can. Also, do not use Altman's Z. The extreme scores are predictive, but a load of empirical research shows the intermediate values are not predictive. The best solution is a Bayesian solution because you are gambling money. Bayesian methods are coherent. Coherence is the statistical property by which fair gambles can be placed. Frequentist ...

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Assume your outcome/dependant variable is the rating agencies rating category, say 10 to 20 rating categories, you can use ordinal logistic regression which is more natural for this kinda problem. So the model will predict the rating category. If your dependant variable is the internal default flag then you can have your model predict the default rate and ...

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If you have access to the payment history then would not it be better to estimate the loss rate using historical payment data? The thing with the interest rate is it will include compensation for a lot of other factors as well, such as funding cost, capital charge, servicing cost etc. And some of these would vary by vintage, for example the funding cost ...

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One possible approach to mapping these ordinal measures into cardinal measures is to use something like average default probabilities of each of the ratings over the period in question. One can perhaps enhance the mapping by using transition probabilities of each rating into the other ratings over the period to take into account the distribution of ratings ...

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Note that Altman Z-Scoring model is calibrated on a sample many years ago. Therefore, a discrimination with these specific values for the coefficients is quite arbitrary. In that situation I think there are 2 options Option 1: Use the Altman's calibrated Z-Score as an indicator Suppose that you have a sample of $N$ private companies, where $D$ of them have ...

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