Graphical Data Representation in Bankruptcy Analysis

SFB 649 Discussion Paper 2006-015

24 Pages Posted: 9 Jan 2017

See all articles by Wolfgang K. Härdle

Wolfgang K. Härdle

Blockchain Research Center; Xiamen University - Wang Yanan Institute for Studies in Economics (WISE); Charles University; National Chiao Tung University; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)

Rouslan Moro

German Institute for Economic Research (DIW Berlin)

Dorothea Schaefer

German Institute for Economic Research (DIW Berlin); JIBS

Date Written: February 24, 2006

Abstract

Graphical data representation is an important tool for model selection in bankruptcy analysis since the problem is highly non-linear and its numerical representation is much less transparent. In classical rating models a convenient representation of ratings in a closed form is possible reducing the need for graphical tools. In contrast to that non-linear non-parametric models achieving better accuracy often rely on visualisation. We demonstrate an application of visualisation techniques at different stages of corporate default analysis based on Support Vector Machines (SVM). These stages are the selection of variables (predictors), probability of default (PD) estimation and the representation of PDs for two and higher dimensional models with colour coding. It is at this stage when the selection of a proper colour scheme becomes essential for a correct visualisation of PDs. The mapping of scores into PDs is done as a non-parametric regression with monotonisation. The SVM learns a non-parametric score function that is, in its turn, non-parametrically transformed into PDs. Since PDs cannot be represented in a closed form, some other ways of displaying them must be found. Graphical tools give this possibility.

Keywords: company rating, default probability, support vector machines, colour coding

JEL Classification: C14, G33, C45

Suggested Citation

Härdle, Wolfgang K. and Moro, Rouslan and Schaefer, Dorothea, Graphical Data Representation in Bankruptcy Analysis (February 24, 2006). SFB 649 Discussion Paper 2006-015, Available at SSRN: https://ssrn.com/abstract=2894383 or http://dx.doi.org/10.2139/ssrn.2894383

Wolfgang K. Härdle (Contact Author)

Blockchain Research Center ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

Charles University ( email )

Celetná 13
Dept Math Physics
Praha 1, 116 36
Czech Republic

National Chiao Tung University ( email )

No. 1001 Ta Hsueh Road
Hsinchu 300
Taiwan

Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)

Unter den Linden 6
Berlin, D-10099
Germany

Rouslan Moro

German Institute for Economic Research (DIW Berlin)

Mohrenstraße 58
Berlin, 10117
Germany

Dorothea Schaefer

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+49 30 8978 9162 (Phone)
+49 30 8978 9104 (Fax)

JIBS ( email )

Jönköping, 55111
Sweden

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