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RUTCOR Colloquia - September 29, 2005
Speaker: Miguel A. Lejeune
Affiliation: Carnegie Mellon University, Tepper School of Business
Title: Derivation of Country Risk Rating Systems Using Logical Analysis of Data
Time: 1:30 - 2:30 PM
Location: RUTCOR Building - Room 139, Rutgers University, Busch Campus, Piscataway, NJ
Abstract:
In order to evaluate the creditworthiness of countries, a learning
model is induced from Standard & Poor's country risk ratings. The
learning model is obtained using the combinatorial-logical
technique of Logical Analysis of Data (LAD), and allows the
construction of a partially ordered set describing the relative
superiority of countries on the basis of their creditworthiness. It
is shown that the Condorcet linear extensions of this poset match
closely S&P's ratings. The rating system derived from the model is
transparent, self-contained, provides stable country risk rating
systems, and correlate highly with the ratings of other rating
agencies. The model is shown to provide excellent ratings even when
applied to the following years' data or to the ratings of
previously unrated countries. Rating changes implemented by S&P in
subsequent years resolved most discrepancies between the
constructed poset and S&P's initial ratings.
Joint work with Peter L. Hammer and Alex Kogan.
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