Partial orderings of default predictions
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Date
2015
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Abstract
We compare and generalize various partial orderings of probability
forecasters according to the quality of their predictions. It appears that
the calibration requirement is quite at odds with the possibility of some
such ordering. However, if the requirements of calibration and identical
sets of debtors are relaxed, comparability obtains more easily. Taking
default predictions in the credit rating industry as an example, we show
for a data base of 5333 (Moody’s) and 6505 ten-year default predictions
(S&P), that Moody’s and S&P cannot be ordered neither according to
their grade distributions given default or non-default or to their Ginicurves,
but Moody’s dominate S&P with respect to the ROC-criterion.
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Keywords
probability forecasts, partial ordering, rating systems