A Markov Chain approach to determine the Optimal Performance Period and Bad Definition for Credit Scorecard
Performance period determination and bad definition for credit scorecard has been a mix of fortune for the typical data modeler. The lack of literature on these matters led to aproliferation of approaches and techniques to solve the problems. However, the most commonly accepted approach involves subjective interpretations of the performance period and bad definition as well as being chicken and egg problem. These complications result in poorly developed credit scorecard with minimal benefits to the banks. In this paper, we will be recommending a simple and effective approach to resolve these issues.
Credit Risk, Markov Chain, Bad Definition, Basel II
Computer Sciences | Finance and Financial Management | Management Information Systems
Information Systems and Management
Research Journal of Social Science and Management
International Journal Organisation
CHOY, Murphy and MA, Nang Laik.
A Markov Chain approach to determine the Optimal Performance Period and Bad Definition for Credit Scorecard. (2011). Research Journal of Social Science and Management. 1, (6), 227-234. Research Collection School Of Information Systems.
Available at: http://ink.library.smu.edu.sg/sis_research/1449