Capital Requirements Regulation (CRR): Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on Prudential Requirements for Credit Institutions and Investment Firms and Amending Regulation (EU) No. 648/2012.

has been cited by the following article:

• TITLE: From Power Curves to Discriminative Power: Measuring Model Performance of LGD Models

  AUTHORS: Robert Frontczak, Michael Jaeger, Bernd Schumacher

  KEYWORDS: LGD Model, Lorenz Curve, Gini Index, Power Ratio

  JOURNAL NAME: Journal of Mathematical Finance, Vol.7 No.3, July 21, 2017

  ABSTRACT: Measuring model performance of rating systems is a major task for banks. The concept of discrimination, i.e. the discriminative power, is used in credit risk modeling to assess the quality of a risk model concerning the separation of extreme events. For PD models CAP (Cumulative Accuracy Profile) or ROC (Receiver Operating Characteristic) curves are used to build a quantity called Accuracy Ratio, which is used to measure the discriminative power. These ideas are well known and broadly used in practice. Although such a measure is also desirable for models of the loss given default (LGD models), it is not documented in the literature. In this note we close this gap. We develop a measure for the discriminative power of LGD models based on Lorenz curves. We study first properties and introduce some alternatives for its calculation from a practical point of view.