Journal of Risk Model Validation

Risk.net

Understanding performance measures for validating default risk models: a review of performance metrics

Jorge R. Sobehart, Sean C. Keenan

ABSTRACT

This article provides a review of frequently used performance metrics for default risk models and rating systems such as power curves, rank statistics and information entropy measures and addresses the recent criticism of these techniques. We highlight technical flaws in the analyses on which these criticisms are based.

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