Journal of Credit Risk

Problems & Solutions: Financially Motivated Model Performance Measures

The Journal of Credit Risk

1. Financially Motivated Model Performance Measures

Risk managers and other market participants often base their decisions, in part, on models. From a credit risk perspective, these models are often selected from those tested via model performance measures. But, what are the strengths and weaknesses of the various popular model performance measures? Can certain popular tests detect certain types of "bad" models? Are there any measures that are particularly wellsuited to financial interpretation?

Editor's note: In the next issue, Craig Friedman and Sven Sandow will address these and other questions.

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