Time to default in credit scoring using survival analysis: a benchmark study

Abstract

We investigate the performance of various survival analysis techniques applied to ten actual credit data sets from Belgian and UK financial institutions. In the comparison we consider classical survival analysis techniques, namely the accelerated failure time models and Cox proportional hazards regression models, as well as Cox proportional hazards regression models with splines in the hazard function. Mixture cure models for single and multiple events were more recently introduced in the credit risk context. The performance of these models is evaluated using both a statistical evaluation and an economic approach through the use of annuity theory. It is found that spline-based methods and the single event mixture cure model perform well in the credit risk context.

Keywords:

• benchmarking
• credit risk modeling
• competing risks
• mixture cure model
• survival analysis

Acknowledgments

We acknowledge the support of the Fund for Scientific Research Flanders, KU Leuven Grant GOA/12/14, and of the IAP Research Network P7/06 of the Belgian Science Policy. The authors thank the referees for their constructive remarks.