@techreport{Engelmann2003Measuring,
abstract = {Assessing the discriminative power of rating systems is an important question to banks
and to regulators. In this article we analyze the Cumulative Accuracy Profile (CAP) and the
Receiver Operating Characteristic (ROC) which are both commonly used in practice. We give
a test-theoretic interpretation for the concavity of the CAP and the ROC curve and demonstrate
how this observation can be used for more efficiently exploiting the informational contents of
accounting ratios. Furthermore, we show that two popular summary statistics of these concepts,
namely the Accuracy Ratio and the area under the ROC curve, contain the same information
and we analyse the statistical properties of these measures. We show in detail how to identify
accounting ratios with high discriminative power, how to calculate confidence intervals for the
area below the ROC curve, and how to test if two rating models validated on the same data set are
different. All concepts are illustrated by applications to real data.},
author = {Bernd Engelmann and Evelyn Hayden and Dirk Tasche},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {G10; C52; 330; Validation; Rating Models; Credit Analysis; Kreditw\"{u}rdigkeit; Bilanzanalyse; Diskriminanzanalyse; Statistischer Test; Kreditrisiko; Validit\"{a}t},
language = {eng},
number = {2003,01},
title = {Measuring the Discriminative Power of Rating Systems},
type = {Discussion Paper, Series 2: Banking and Financial Supervision},
url = {http://hdl.handle.net/10419/19726},
year = {2003}
}
