Rating firms and sensitivity analysis

Carlo Alberto Magni, Stefano Malagoli, Andrea Marchioni and Giovanni Mastroleo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper introduces a model for rating a firm's default risk based on fuzzy logic and expert system and an associated model of sensitivity analysis (SA) for managerial purposes. The rating model automatically replicates the evaluation process of default risk performed by human experts. It makes use of a modular approach based on rules blocks and conditional implications. The SA model investigates the change in the firm's default risk under changes in the model inputs and employs recent results in the engineering literature of Sensitivity Analysis. In particular, it (i) allows the decomposition of the historical variation of default risk, (ii) identifies the most relevant parameters for the risk variation, and (iii) suggests managerial actions to be undertaken for improving the firm's rating.

Keywords: Credit rating; default risk; fuzzy logic; fuzzy expert system; sensitivity analysis. (search for similar items in EconPapers)
JEL-codes: C63 C67 G32 (search for similar items in EconPapers)
Date: 2019-07-21
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-cmp, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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