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http://dx.doi.org/10.5351/KJAS.2007.20.3.573

Korea-specified Maximum Expected Utility Model for the Probability of Default  

Park, You-Sung (Department of Statistics, Korea University)
Song, Ji-Hyun (Risk solutions Team, Korea Enterprise Data Co., Ltd.)
Choi, Bo-Seung (Institute of Statistics, Korea University)
Publication Information
The Korean Journal of Applied Statistics / v.20, no.3, 2007 , pp. 573-584 More about this Journal
Abstract
A well estimated probability of default is most important for constructing a good credit scoring process. The maximum expected utility (MEU) model has been suggested as an alternative of the traditional logistic regression model. Because the MEU model has been constructed using financial data arising from North America and European countries, the MEU model may not be suitable to Korean private firms. Thus, we propose a Korea-specific MEU model by estimating the parameters involved in kernel functions. This Korea-specific MEU model is illustrated using 34,057 private firms to show the performance of the MEU model relative to the usual logistic regression model.
Keywords
Maximum expected utility; linear logistic regression; credit scoring process; probability of default; kernel function;
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