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A multicriteria forecast of the default probability in credit risk assessment

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  • Ayrton Benedito Gaia Do Couto
  • Luiz Flavio Autran Monteiro Gomes

Abstract

This study analyses, through a multicriteria approach producing if-then rules, the possibility of forecasting the default probability (PD) for low-default portfolios in credit risk assessment. This approach relies on the simultaneous and complementary application of fuzzy and rough sets theories. The calculation of this probability is normally subject to judgments of experts, which imply subjectivity, imprecision and uncertainty of the results. In the proposed approach, the inferred if-then rules for a decision table generated by a simulation of 50 companies allowed the production of a knowledge base for the forecasting of classes of default probabilities. The 'RoughSets®' package, in 'R', was used as support for the analysis and forecasting system.

Suggested Citation

  • Ayrton Benedito Gaia Do Couto & Luiz Flavio Autran Monteiro Gomes, 2020. "A multicriteria forecast of the default probability in credit risk assessment," International Journal of Business and Systems Research, Inderscience Enterprises Ltd, vol. 14(3), pages 281-297.
    • Handle: RePEc:ids:ijbsre:v:14:y:2020:i:3:p:281-297
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