A process model to develop an internal rating system: sovereign credit ratings
A process model to develop an internal rating system: sovereign credit ratings
he Basel II capital accord encourages financial institutions to develop rating systems for assessing the risk of default of their credit portfolios in order to better calculate the minimum regulatory capital needed to cover unexpected losses. In the internal ratings based approach, financial institutions are allowed to build their own models based on collected data. In this paper, a generic process model to develop an advanced internal rating system is presented in the context of country risk analysis of developed and developing countries. In the modelling step, a new, gradual approach is suggested to augment the well-known ordinal logistic regression model with a kernel based learning capability, hereby yielding models which are at the same time both accurate and readable. The estimated models are extensively evaluated and validated taking into account several criteria. Furthermore, it is shown how these models can be transformed into user-friendly and easy to understand scorecards.
internal rating system, process model, support vector machines, sovereign ratings
Van Gestel, Tony
e917bd96-d291-4132-958b-e54cb1b9eaf9
Baesens, Bart
f7c6496b-aa7f-4026-8616-ca61d9e216f0
Van Dijcke, Peter
b6de696a-011a-47ea-a7dd-a1e7e9dcac0c
Garcia, Joao
8652f13b-37c4-4df6-84de-8cc761acf683
Suykens, Johan A.K.
bdd3e2bd-0bed-4f9e-bb07-8d2e24e3b7a8
Vanthienen, Jan
6f3d818f-0fce-46fa-966b-160e645caf6d
2006
Van Gestel, Tony
e917bd96-d291-4132-958b-e54cb1b9eaf9
Baesens, Bart
f7c6496b-aa7f-4026-8616-ca61d9e216f0
Van Dijcke, Peter
b6de696a-011a-47ea-a7dd-a1e7e9dcac0c
Garcia, Joao
8652f13b-37c4-4df6-84de-8cc761acf683
Suykens, Johan A.K.
bdd3e2bd-0bed-4f9e-bb07-8d2e24e3b7a8
Vanthienen, Jan
6f3d818f-0fce-46fa-966b-160e645caf6d
Van Gestel, Tony, Baesens, Bart, Van Dijcke, Peter, Garcia, Joao, Suykens, Johan A.K. and Vanthienen, Jan
(2006)
A process model to develop an internal rating system: sovereign credit ratings.
Decision Support Systems.
(doi:10.1016/j.dss.2005.10.001).
Abstract
he Basel II capital accord encourages financial institutions to develop rating systems for assessing the risk of default of their credit portfolios in order to better calculate the minimum regulatory capital needed to cover unexpected losses. In the internal ratings based approach, financial institutions are allowed to build their own models based on collected data. In this paper, a generic process model to develop an advanced internal rating system is presented in the context of country risk analysis of developed and developing countries. In the modelling step, a new, gradual approach is suggested to augment the well-known ordinal logistic regression model with a kernel based learning capability, hereby yielding models which are at the same time both accurate and readable. The estimated models are extensively evaluated and validated taking into account several criteria. Furthermore, it is shown how these models can be transformed into user-friendly and easy to understand scorecards.
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Published date: 2006
Keywords:
internal rating system, process model, support vector machines, sovereign ratings
Identifiers
Local EPrints ID: 37158
URI: http://eprints.soton.ac.uk/id/eprint/37158
ISSN: 0167-9236
PURE UUID: 650b8684-8d10-477f-8c05-0d7b93fe6af6
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Date deposited: 11 Jul 2006
Last modified: 16 Mar 2024 03:39
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Contributors
Author:
Tony Van Gestel
Author:
Peter Van Dijcke
Author:
Joao Garcia
Author:
Johan A.K. Suykens
Author:
Jan Vanthienen
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