Hi David ,

Was unable to understand why :

GINI/CAP under perfect conditions model behaves as straight line and then constant? Plz throw some light on it..

Anil

Anil

On the X-axis, that is the “before” sort of firms based on the credit scoring model; i.e., most likely to default first.

The Y-axis is the “after, what happened.” If you think about the first firm, moving right along the X-axis: did it default? If it did, then the line is headed up straightly because X = 1 and Y = 1/total defaults. Then the second firm, did it default? If yes, the line is still going straight because X = 2 and Y = (2/total defaults) have defaulted. Then to the third, if it did not default, then line is flat here because x= 3 but y = still 2/total defaults. Model is now imperfect. At the end the model is only perfect all of the firms that actually defaulted were sorted to the top of the PD list.

David

thanks David,

That helps

Or in other words you can say that if your population has X% bads then you would expect that perfect model should help you sorting the population in such a manner that your first X% of the population is the total % bads in the population....