A stable credit rating model based on learning vector quantization

Authors:
Ning Chen;Armando Vieira;Bernardete Ribeiro;Joã/o Duarte;Joã/o Neves
Affiliations:
(Correspd. Tel.: +351228340500/ Fax: +351228321159/ E-mail: ningchen74@gmail.com) GECAD, Instituto Superior de Engenharia do Porto, Porto, Portugal;GECAD, Instituto Superior de Engenharia do Porto, Porto, Portugal;CISUC, Department of Informatics Engineering, University of Coimbra, Coimbra, Portugal;GECAD, Instituto Superior de Engenharia do Porto, Porto, Portugal;ISEG-School of Economics, Technical University of Lisbon, Lisbon, Portugal
Venue:
Intelligent Data Analysis
Year:
2011

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Abstract

Credit rating is involved in many financial applications to estimate the creditworthiness of corporations or individuals. In addition to building accurate credit rating models, the stability of models is of significant importance to economic performance. In this work we propose a methodology based on learning vector quantization (LVQ) to develop a credit rating model. This model is applied to a French database of private companies over a period of several years. LVQ is trained and calibrated in a supervised way using data from 2006 and then applied to the remaining years. We analyze one year transition matrix and show that the model is capable to create robust and stable classes to rank companies.