Threshold Accepting for Credit Risk Assessment and Validation

Marianna Lyra, Akwum Onwunta and Peter Winker

No 39, Working Papers from COMISEF

Abstract: According to the latest Basel framework of Banking Supervision, financial institutions should internally assign their borrowers into a number of homogeneous groups. Each group is assigned a probability of default which distinguishes it from other groups. This study aims at determining the optimal number and size of groups that allow for statistical ex post validation of the efficiency of the credit risk assignment system. Our credit risk assignment approach is based on Threshold Accepting, a local search optimization technique, which has recently performed reliably in credit risk clustering especially when considering several realistic constraints. Using a relatively large real-world retail credit portfolio, we propose a new technique to validate ex post the precision of the grading system.

Keywords: credit risk assignment; Threshold Accepting; statistical validation (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-05-25
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Threshold accepting for credit risk assessment and validation (2015)
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