[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
  EconPapers    
Economics at your fingertips  
 

Validation of default probability models: A stress testing approach

Fábio Yasuhiro Tsukahara, Herbert Kimura, Vinicius Amorim Sobreiro and Juan Arismendi Zambrano ()

International Review of Financial Analysis, 2016, vol. 47, issue C, 70-85

Abstract: This study aims to evaluate the techniques used for the validation of default probability (DP) models. By generating simulated stress data, we build ideal conditions to assess the adequacy of the metrics in different stress scenarios. In addition, we empirically analyze the evaluation metrics using the information on 30,686 delisted US public companies as a proxy of default. Using simulated data, we find that entropy based metrics such as measure M are more sensitive to changes in the characteristics of distributions of credit scores. The empirical sub-samples stress test data show that AUROC is the metric most sensitive to changes in market conditions, being followed by measure M. Our results can help risk managers to make rapid decisions regarding the validation of risk models in different scenarios.

Keywords: Portfolio; Credit risk; Banking; Default probability; Validation techniques (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521916301028
Full text for ScienceDirect subscribers only

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:eee:finana:v:47:y:2016:i:c:p:70-85

DOI: 10.1016/j.irfa.2016.06.007

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2024-12-28
Handle: RePEc:eee:finana:v:47:y:2016:i:c:p:70-85