Determining the Target Variable in Credit Scoring Models

  • Martin Řezáč

Abstract

Determination the target variable is the crucial point in the whole development process of credit scoring models, which are an essential part of risk management. Usually some Good/Bad definition is applied. In this paper we study the effect of use of indeterminate value of target variable. We explain the basic principles of logistic regression modelling and definition of the target variable. Next, the focus is given to introduction of some of the widely used statistics for model assessment. The main part of the paper is devoted to development and assessment of several credit scoring models on real credit data, which are built up and assessed according various definitions of target variable. We show that there is a valid reason for some target definitions to include the indeterminate value into the modelling process, as it provided us with convincing results.

Published
2018-05-11
How to Cite
ŘEZÁČ, Martin. Determining the Target Variable in Credit Scoring Models. GSTF Journal of Mathematics, Statistics and Operations Research (JMSOR), [S.l.], v. 2, n. 1, may 2018. ISSN 2251-3396. Available at: <http://dl6.globalstf.org/index.php/jmsor/article/view/1540>. Date accessed: 16 dec. 2018.