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Optimal Threshold from ROC and CAP Curves
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 Title & Authors
Optimal Threshold from ROC and CAP Curves
Hong, Chong-Sun; Choi, Jin-Soo;
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 Abstract
Receiver Operating Characteristic(ROC) and Cumulative Accuracy Profile(CAP) curves are two methods used to assess the discriminatory power of different credit-rating approaches. The points of optimal classification accuracy on an ROC curve and of maximal profit on a CAP curve can be found by using iso-performance tangent lines, which are based on the standard notion of accuracy. In this paper, we offer an alternative accuracy measure called the true rate. Using this rate, one can obtain alternative optimal threshold points on both ROC and CAP curves. For most real populations of borrowers, the number of the defaults is much less than that of the non-defaults, and in such cases the true rate may be more efficient than the accuracy rate in terms of cost functions. Moreover, it is shown that both alternative scores of optimal classification accuracy and maximal profit are the identical, and this single score coincides with the score corresponding to Kolmogorov-Smirnov statistic used to test the homogeneous distribution functions of the defaults and non-defaults.
 Keywords
Accuracy;credit rating;cut-off point;default;discriminatory power;score;
 Language
Korean
 Cited by
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