SME Funding by Gianluca Oricchio Andrea Crovetto Sergio Lugaresi & Stefano Fontana

Author:Gianluca Oricchio, Andrea Crovetto, Sergio Lugaresi & Stefano Fontana
Language: eng
Format: epub
Publisher: Palgrave Macmillan UK, London

the hit rate (HR) – the percentage of correct classifications of bads over the total of the defaulted positions.

Table 4.41 shows the two rates of correct (HR) and incorrect (MR) classification, coherent with the illustrative contingency table proposed in Table 4.40.Table 4.41Hit rate and misclassification rate: an illustrative example

Test

Value (%)

Hit rate

70

Misclassification

25

The Kolmogorov–Smirnov distance (KS) evaluates the degree of separation between the solvent and defaulted positions, measuring the maximum vertical distance (in absolute values) between the empirical cumulative distributions of goods and bads. The variation in its values is the [0; 1] interval: the greater the index, the better the model’s separation ability.

On the basis of the KS computation, Figure 4.20 illustrates the cumulative distribution of goods and bads in the same sample; Fig. 4.21 compares the trends of the KS test on two different samples: development and validation.

For further insights into discriminant power tests, see Brier (1950), Bamber (1975), Lee (1999), Engelmann et al. (2003), Sobehart and Keenan (2004) and Basel Committee (2005b).

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