Journal
JOURNAL OF EMPIRICAL FINANCE
Volume 16, Issue 3, Pages 457-465Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jempfin.2008.11.003
Keywords
Beta-binomial distribution; Credit scoring; Population drift
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This paper develops a count data model for credit scoring which allows the estimation of default probabilities using incomplete contracts data. The main advantage of the proposed approach is that it permits a more efficient use of the data, including that for the most recent clients. Moreover, because the probability of default is specified as a function of the age of the contract, the model provides sonic information on the timing of the defaults. The model is based on the beta-binomial distribution, which is found to be particularly adequate for this purpose. A well-known dataset on personal loans is used to illustrate the application of the proposed model. (C) 2008 Elsevier B.V. All rights reserved.
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