We consider the 12-month moving average aggregate default rate of Samp;P-rated US-bonds. We estimate the conditional probability distribution of this default rate as a function of a weighted average bond rating, a lagged default rate and a preliminary predictor that is based on lagged new...

In the incomplete market setting, we define a generalized Kullback- Leibler relative entropy in terms of an investor's expected utility. We motivate, from an economic point of view, this quantity - the relative U-entropy. Relative U-entropy measures the discrepancy from a set of pricing measures...

We measure regression model performance (as perceived by a conservative investor betting on a complete market) via the out-of-sample expected utility for the allocation that maximizes expected utility under a most adverse modelconsistent measure. This robust allocation is optimal under the...

Since probabilistic models are now widely used for financial decision-making, model performance measurement is critically important. We discuss model performance measures that explicitly reflect the financial consequences of decisions based on the models and show how these model performance...

Investors, such as traders and portfolio managers, who face the practical problem of how to allocate their assets in financial markets, often use probabilistic models, in conjunction with some quantification of their preferences. In this paper, we explore a consistent, tractable framework, based...

We estimate real-world private firm default probabilities over a fixed time horizon,conditioned on a vector of explanatory variables, which include financial ratios, economic indicators, and market prices. To estimate our model, we apply a recently developed method from statistical learning...

In the incomplete market setting, we define a generalized Kullback-Leibler relative entropy in terms of an investor's expected utility. We motivate, from an economic point of view, this quantity - the relative Uamp;#8722;entropy. Relative Uamp;#8722;entropy measures the discrepancy from a set of pricing...

Credit portfolio risk depends strongly on the recovery risk of the debt instruments in the portfolio. In order to make precise statements about recovery risk, one must understand the probability distribution of recovery values for each debt instrument, given the instrument's characteristics and...

We examine model performance measures in four contexts: Discrete Probability, Continuous Probability, Conditional Discrete Probability and Conditional Probability Density Models. We consider the model performance question from the point of view of an investor who evaluates models based on the...

We measure the performance of probabilistic models from a decision-theoretic perspective along the lines of Friedman and Sandow. In particular, we adopt the point of view of an investor who evaluates models based on the test-sample averaged utility of the expected-utility-optimal strategies that...