Murphy Choy

Performance period: Why is it important?

In Uncategorized on June 13, 2011 at 3:40 am

Performance period is a very important concept for determination of the bad definition in credit scorecard. Performance period and delinquency are usually correlated in some ways. Delinquency are usually defined by days past due. The more time given, the higher the delinquency possible.

Determination of performance period is usually done in credit scorecard analysis using a simple analysis called Ever DPD curve analysis. This type of analysis is very simple and seeks to examine several vintages (Accounts from different time period) for the trend of their bad rate through the months on book (Each month that passes with the accounts). The key to identification of the stabilisation of the bad rate is the start of the slowing growth of bads in the portfolio. That particular point in time indicates where the portfolio’s bad rate has stabilized. That marks the time the performance period is as most of the bads will be identified by then.

There are a few problems with this approach. First, we have to use a variety of DPD definition. Secondly, the approach leaves much gap in terms of the exact point of stabilization. This gap results from the subjective interpretation of the curves. Thus a more robust method is needed.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: