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http://dx.doi.org/10.5351/KJAS.2009.22.1.029

Adjusted ROC and CAP Curves  

Hong, Chong-Sun (Dept. of Statistics, Sungkyunkwan University)
Kim, Ji-Hun (Research Institute of Applied Statistics, Sungkyunkwan University)
Choi, Jin-Soo (Research Institute of Applied Statistics, Sungkyunkwan University)
Publication Information
The Korean Journal of Applied Statistics / v.22, no.1, 2009 , pp. 29-39 More about this Journal
Abstract
Among others, ROC and CAP curves are used to explore the discriminatory power between the defaults and non-defaults, based on the distribution of the probability of default in credit rating works. ROC and CAP curves are plotted in terms of various ratios of the probability of default. Each point on ROC and CAP curves is calculated according to cutting points (scores) for classifying between defaults and non-defaults. In this paper, adjusted ROC and CAP curves are proposed by using functions of ratios of the probability of default. It is possible to recognize the score corresponding to a point oil these adjusted curves, and we can identify the best score to show the optimal discriminatory power. Moreover, we discuss the relationships between the best score obtained from the adjusted ROC and CAP curves and the score corresponding to Kolmogorov - Smirnov statistic to test the homogeneous distribution functions of the defaults and non-defaults.
Keywords
Credit rating; cross-product ratio; cutting point; discriminatory power; odds ratio; probability of default; score;
Citations & Related Records
Times Cited By KSCI : 1  (Citation Analysis)
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