Automated credit rating prediction and the treatment of information

Authors

C. Gangolf, R. Dochow, G. Schmidt, and T. Tamisier

Reference

RAIRO - Operations Research, vol. 50, no. 4-5, pp. 749-765, 2016

Description

Automated credit rating prediction (ACRP) algorithms are used to predict the ratings of bonds without having to trust one rating agency, like Moody’s, Fitch or S&P. Nevertheless, for the moment, the accuracy of ACRP algorithms is investigated by empirical tests. In this paper, the framework for a competitive analysis is set and afterwards in this framework, the definition of competitive ACRP algorithms and its demonstration is given. In this way, for a competitive ACRP algorithm, a worst-case guarantee concerning the misclassification error is offered. Furthermore, several ACRP algorithms from the literature are compared according their competitiveness.