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FRM Part II · FRM Exam Part II · Credit Scoring and Retail Credit Risk Management

A bank validates a scorecard on a holdout sample. The Kolmogorov-Smirnov (KS) statistic is 45% and the AUC is 0.80. Which interpretation of the associated Gini coefficient and KS is correct?

Gini equals 2 times AUC minus 1, which gives 0.60. The KS statistic is the maximum gap between the cumulative score distributions of good and bad accounts, so it measures discriminatory power rather than calibration or an area under a curve.

  1. AGini is 0.60; KS is the maximum separation between the cumulative distributions of goods and badsCorrect
  2. BGini is 0.80; KS is the average separation between the score distributions
  3. CGini is 0.30; KS measures calibration of predicted default rates
  4. DGini is 0.60; KS is the area under the ROC curve

Explanation

Gini = 2*AUC - 1 = 2(0.80) - 1 = 0.60. KS is the maximum vertical distance between the cumulative score distributions of good and bad accounts, measuring discrimination, not calibration. Gini is not equal to AUC, and KS is not an area.

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