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FRM Part II · FRM Exam Part II · Introduction to Credit Risk Modeling and Assessment

A bank's scorecard has an AUC of 0.80 on development data. A validator computes the Gini (accuracy ratio) and then notes that, on an out-of-time sample, the Gini fell to 0.50. What are the original Gini and the implied out-of-time AUC?

The original Gini is 0.60 and the out-of-time AUC is 0.75. Gini equals twice the AUC minus one, so 0.80 gives 0.60, and a Gini of 0.50 converts back to an AUC of (0.50+1)/2, or 0.75, showing weaker discrimination out of time.

  1. AGini 0.60; out-of-time AUC 0.75Correct
  2. BGini 0.80; out-of-time AUC 0.50
  3. CGini 0.30; out-of-time AUC 0.65
  4. DGini 0.60; out-of-time AUC 0.50

Explanation

Gini = 2 x AUC - 1, so development Gini = 2(0.80) - 1 = 0.60. Out-of-time AUC = (Gini + 1)/2 = 1.50/2 = 0.75. Setting AUC equal to Gini, or ignoring the conversion, produces the other options. The drop from 0.60 to 0.50 signals deterioration in discrimination.

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