A proposal for a validation methodology for the discriminatory power of a rating system over time

Oliver Blümke

Journal of Risk Model Validation

Abstract: ABSTRACT Validating the discriminatory power of a rating system is not trivial: the underlying default probabilities that determine the discriminatory power change over time due to changes in the macroeconomic environment and the credit portfolio. This paper presents a methodology using Basel II's one-factor model that enables us to take these changes into account. Using the presented methodology, the relation between the systematic factor of the one-factor model and the discriminatory power of a rating system is analyzed. Most importantly, the methodology enables us to introduce a validation procedure that allows us to compare the discriminatory power of a rating system over time.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk-model-validat ... ing-system-over-time (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ5:2161325

Access Statistics for this article

More articles in Journal of Risk Model Validation from Journal of Risk Model Validation
Bibliographic data for series maintained by Thomas Paine ().