Analytic Models of the ROC Curve: Applications to Credit Rating Model Validation

33 Pages Posted: 1 Mar 2007

See all articles by Stephen E. Satchell

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics

Wei Xia

University of International Business and Economics, China; BlackCat Capital Partners LLP; University of London - Birkbeck College - School of Economics, Mathematics and Statistics

Date Written: January 20, 2007

Abstract

In this paper, the authors use the concept of the population Receiver Operating Characteristic (ROC) curve to build analytic models of ROC curves. Information about the population properties can be used to gain greater accuracy of estimation relative to the non-parametric methods currently in vogue. If used properly, this is particularly helpful in some situations where the number of sick loans is rather small, a situation frequently met in practice and in periods of benign macro-economic background.

Keywords: Validation, Credit Analysis, Rating Models, ROC, Basel II

JEL Classification: C43, G20, G38

Suggested Citation

Satchell, Stephen E. and Xia, Wei, Analytic Models of the ROC Curve: Applications to Credit Rating Model Validation (January 20, 2007). Available at SSRN: https://ssrn.com/abstract=966131 or http://dx.doi.org/10.2139/ssrn.966131

Stephen E. Satchell

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
44 (0)1223 335213 (Phone)
44 (0)1223 335475 (Fax)

HOME PAGE: http://www.econ.cam.ac.uk/faculty/satchell/index.h

Wei Xia (Contact Author)

University of International Business and Economics, China ( email )

10 East Huixin Street
Chaouang District
Beijing, 100029
China

BlackCat Capital Partners LLP ( email )

London
United Kingdom

University of London - Birkbeck College - School of Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom

HOME PAGE: http://www.ems.bbk.ac.uk/faculty/phdStudents/xia/index_html

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