Evaluating Credit Risk Models

FRBSF Working Paper No. 99-06

23 Pages Posted: 27 Jul 1999

See all articles by Jose A. Lopez

Jose A. Lopez

Federal Reserve Bank of San Francisco

Marc R. Saidenberg

affiliation not provided to SSRN

Date Written: April 1999


Over the past decade, commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital. These efforts have been recognized and encouraged by bank regulators. Recently, banks have extended these efforts into the field of credit risk modeling. However, an important question for both banks and their regulators is evaluating the accuracy of a model's forecasts of credit losses, especially given the small number of available forecasts due to their typically long planning horizons. Using a panel data approach, we propose evaluation methods for credit risk models based on cross-sectional simulation. Specifically, models are evaluated not only on their forecasts over time, but also on their forecasts at a given point in time for simulated credit portfolios. Once the forecasts corresponding to these portfolios are generated, they can be evaluated using various statistical methods.

JEL Classification: G2, G28, C52

Suggested Citation

Lopez, Jose Antonio and Saidenberg, Marc R., Evaluating Credit Risk Models (April 1999). FRBSF Working Paper No. 99-06, Available at SSRN: https://ssrn.com/abstract=170008 or http://dx.doi.org/10.2139/ssrn.170008

Jose Antonio Lopez (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
San Francisco, CA 94105
United States
415-977-3894 (Phone)
415-974-2168 (Fax)

Marc R. Saidenberg

affiliation not provided to SSRN

No Address Available

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