Journal of Risk Model Validation

Risk.net

Measures of predictive success for rating functions

Sebastian Ostrowski, Peter Reichling

ABSTRACT

This paper aims to develop an adequate measure of predictive success and accuracy of rating functions. First, we show that the common measures of rating accuracy, ie, area under curve and accuracy ratio, lack informative value for single rating classes. A 1991 paper by Selten built up an axiomatic framework for measures of predictive success. We introduce a measure for rating functions that fulfills the axioms proposed by Selten. Furthermore, we carry out an empirical investigation to analyze the predictive power and accuracy of Standard & Poor's and Moody's ratings, and compare the rankings according to the area under curve and our measure.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

If you already have an account, please sign in here.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: