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How to Measure the Quality of Credit Scoring Models

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    Abstract

    Credit scoring models are widely used to predict the probability of client default. To measure the quality of such scoring models it is possible to use quantitative indices such as the Gini index, Kolmogorov-Smirnov statistics (KS), Lift, the Mahalanobis distance, and information statistics. This paper reviews and illustrates the use of these indices in practice.

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    File URL: http://journal.fsv.cuni.cz/storage/1228_rezac.pdf
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    Bibliographic Info

    Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

    Volume (Year): 61 (2011)
    Issue (Month): 5 (November)
    Pages: 486-507

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    Handle: RePEc:fau:fauart:v:61:y:2011:i:5:p:486-507

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    Keywords: credit scoring; quality indices; lift; profit; normally distributed scores;

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    1. Engelmann, Bernd & Hayden, Evelyn & Tasche, Dirk, 2003. "Measuring the Discriminative Power of Rating Systems," Discussion Paper Series 2: Banking and Financial Studies 2003,01, Deutsche Bundesbank, Research Centre.
    2. Martin Vojtek & Evžen Koèenda, 2006. "Credit-Scoring Methods (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 56(3-4), pages 152-167, March.
    3. Evžen Kocenda & Martin Vojtek, 2011. "Default Predictors in Retail Credit Scoring: Evidence from Czech Banking Data," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 47(6), pages 80-98, November.
    4. Thomas, Lyn C., 2000. "A survey of credit and behavioural scoring: forecasting financial risk of lending to consumers," International Journal of Forecasting, Elsevier, vol. 16(2), pages 149-172.
    5. Anderson, Raymond, 2007. "The Credit Scoring Toolkit: Theory and Practice for Retail Credit Risk Management and Decision Automation," OUP Catalogue, Oxford University Press, number 9780199226405, September.
    6. Roger Newson, 2006. "Confidence intervals for rank statistics: Somers' D and extensions," Stata Journal, StataCorp LP, vol. 6(3), pages 309-334, September.
    7. Crook, Jonathan N. & Edelman, David B. & Thomas, Lyn C., 2007. "Recent developments in consumer credit risk assessment," European Journal of Operational Research, Elsevier, vol. 183(3), pages 1447-1465, December.
    8. Thomas, Lyn C., 2009. "Consumer Credit Models: Pricing, Profit and Portfolios," OUP Catalogue, Oxford University Press, number 9780199232130, September.
    9. Jiri Witzany, 2011. "Definition of Default and Quality of Scoring Functions," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 18(28).
    10. D. J. Hand & W. E. Henley, 1997. "Statistical Classification Methods in Consumer Credit Scoring: a Review," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 160(3), pages 523-541.
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