Methods and systems for providing a financial early warning of default

• US 20030229556A1
• Filed: 06/05/2002
• Published: 12/11/2003
• Est. Priority Date: 06/05/2002
• Status: Abandoned Application

• Current Assignee: General Electric Capital Corporation (General Electric Company)
• Original Assignee: General Electric Capital Corporation (General Electric Company)
• Inventors: Neagu, Radu, Shaw, Michael, Pisupati, Chandrasekhar, Hoerl, Roger, Ahn, Sung-Ho J., Weisman, Jason, Ramanathan, Kannan
• Application Number:
  US10/162,217
• Publication Number:
  US 20030229556A1
• Time in Patent Office: Days
• US Class Current: 705/36
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

The invention provides for processing of data to determine the likelihood of default of an entity. The processing may comprise obtaining a data set relating to an entity, the data set including at least a first likelihood of default indicator (LDI) value and a second LDI value; determining a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value; and determining the likelihood of default of the entity based on the LDI slope value and the first LDI value.

Claims

1. A method for processing data to determine the likelihood of default of an entity, the method comprising:

obtaining a data set relating to an entity, the data set including at least a first likelihood of default indicator (LDI) value and a second LDI value;

determining a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value; and

determining the likelihood of default of the entity based on the LDI slope value and the first LDI value.

2. The method of claim 1, wherein the first LDI value is a present value and the second LDI value is a past value.

3. The method of claim 1, wherein the data set further includes a past window of LDI values and a present window of LDI values;

the past window of LDI values containing a plurality of past LDI values disposed in time proximity to the second LDI value; and

the present window of LDI values containing a plurality of present LDI values disposed in time proximity to the first LDI value; and

wherein the determining the LDI rate of change is performed based on the past window of past LDI values and the present window of present LDI values.

4. The method of claim 3, wherein the determining the LDI rate of change based on the past window of LDI values and the present window of LDI values includes smoothing the second LDI value and smoothing the first LDI value.

5. The method of claim 4, wherein:

smoothing the second LDI value results in the generation of a past smoothed value; and

smoothing the first LDI value results in the generation of a present smoothed value; and

wherein the past smoothed value is processed with the present smoothed value to provide the LDI slope value.

6. The method of claim 5, wherein the determining a LDI rate of change includes comparing the past smoothed value with the present smoothed value.

7. The method of claim 6, wherein comparing the past smoothed value with the present smoothed value to determine the LDI rate of change includes using a relationship:

LDI rate of change=100×

(present smoothed value−

past smoothed value)/past smoothed value.

8. The method of claim 1, wherein the first LDI value is a present LDI value.

9. The method of claim 8, wherein the LDI slope value and the first LDI value are plotted in a two-dimensional risk space.

10. The method of claim 9, wherein the risk space is divided into zones based on LDI threshold values and LDI slope value thresholds.

11. The method of claim 1, further including generating a two-dimensional risk space by plotting LDI values on a first axis and plotting LDI slope values on a second axis;

and

plotting the LDI slope value and the first LDI value, which is a present LDI value, into the two-dimensional risk space.

12. The method of claim 11, further including determining threshold values, which separate the risk space into zones, based on an optimization of type I and type II errors;

wherein;

a type I error is an error in which a default signal was not given and a test entity defaulted; and

a type II error is an error in which a default signal was given and a further test entity did not default.

13. The method of claim 1, wherein the determining a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value includes:

comparing the first LDI value and the second LDI value.

14. The method of claim 1, wherein the determining a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value includes:

smoothing the first LDI value along with other LDI values proximate to the first LDI value to generate a present smoothed LDI value;

smoothing the second LDI value along with other LDI values proximate to the second LDI value to generate a past smoothed LDI value; and

comparing the present smoothed LDI value and the past smoothed LDI value.

15. The method of claim 14, wherein the smoothing includes using an average calculation.

16. A computer readable memory for directing the operation of a processing system to determine the likelihood of default of an entity, the computer readable memory comprising:

a first portion that stores a data set relating to an entity, the data set including at least a first likelihood of default indicator (LDI) value and a second LDI value;

a second portion to determine a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value; and

a third portion to determine the likelihood of default of the entity based on the LDI slope value and the first LDI value, the first LDI value being a present value.

17. The computer readable memory of claim 16, wherein the first LDI value is a present day value and the second LDI value is a past day value;

and

wherein the data set further includes a past window of LDI values and a present window of LDI values;

the past window of LDI values containing a plurality of past LDI values disposed in time proximity to the second LDI value; and

the present window of LDI values containing a plurality of present LDI values disposed in time proximity to the first LDI value; and

wherein the second portion determines the LDI rate of change based on the past window of past LDI values and the present window of present LDI values.

18. The computer readable memory of claim 17, wherein the second portion determines the LDI rate of change based on the past window of LDI values and the present window of LDI values by smoothing the second LDI value and smoothing the first LDI value;

and wherein;

smoothing the second LDI value results in the generation of a past smoothed value; and

smoothing the first LDI value results in the generation of a present smoothed value; and

wherein the second portion compares the past smoothed value with the present smoothed value to provide the LDI slope value.

19. A system for determining the likelihood of default of an entity, the system comprising:

a memory portion that stores a data set relating to an entity, the data set including at least a first likelihood of default indicator (LDI) value and a second LDI value;

a slope determination portion that determines a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value; and

an assessment portion to determine the likelihood of default of the entity based on the LDI slope value and the first LDI value.

20. The system of claim 19, wherein the assessment portion plots the LDI slope value and the first LDI value onto a two-dimensional risk space, the risk space defined by a plurality of LDI slope values and a plurality of LDI values.

21. The system of claim 19, wherein the first LDI value is a present day value and the second LDI value is a past day value;

and

wherein the data set further includes a past window of LDI values and a present window of LDI values;

the past window of LDI values containing a plurality of past LDI values disposed in time proximity to the second LDI value; and

the present window of LDI values containing a plurality of present LDI values disposed in time proximity to the first LDI value; and

wherein the slope determination portion determines the LDI rate of change based on the past window of past LDI values and the present window of present LDI values.

22. The system of claim 21, wherein the slope determination portion determining the LDI rate of change based on the past window of LDI values and the present window of LDI values includes smoothing the second LDI value and smoothing the first LDI value;

and wherein;

smoothing the second LDI value results in the generation of a past smoothed value; and

smoothing the first LDI value results in the generation of a present smoothed value; and

wherein the slope determination portion compares the past smoothed value with the present smoothed value to provide the LDI slope value; and

wherein comparing the past smoothed value with the present smoothed value to determine the LDI rate of change includes using the relationship;

LDI rate of change=100×

(present smoothed value−

past smoothed value)/past smoothed value.

23. A method for processing data to determine the likelihood of default of an entity, the method comprising:

obtaining a data set relating to an entity, the data set including at least a first likelihood of default indicator (LDI) value and a second LDI value;

inputting an LDI slope value, the LDI slope value having been determined from a LDI rate of change based on the first LDI value and the second LDI value; and

determining the likelihood of default of the entity based on the LDI slope value and the first LDI value.

24. The method of claim 23, wherein the LDI slope value having been determined from a LDI rate of change based on the first LDI value and the second LDI value includes:

smoothing the first LDI value along with other LDI values proximate to the first LDI value to generate a present smoothed LDI value;

smoothing the second LDI value along with other LDI values proximate to the second LDI value to generate a past smoothed LDI value; and

comparing the present smoothed LDI value and the past smoothed LDI value.

25. The method of claim 23, wherein:

the LDI slope value having been determined from a LDI rate of change based on the first LDI value and the second LDI value is performed by a first entity; and

determining the likelihood of default of the entity based on the LDI slope value and the first LDI value is performed by a second entity.

26. A method for processing data to determine the likelihood of default of an entity, the method comprising:

obtaining a data set relating to an entity, the data set including at least a first likelihood of default indicator (LDI) value and a second LDI value, the first LDI value is a present day value and the second LDI value is a past day value;

determining a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value; and

determining the likelihood of default of the entity based on the LDI slope value and the first LDI value; and

wherein the data set further includes a past window of LDI values and a present window of LDI values;

the past window of LDI values containing a plurality of past LDI values disposed in time proximity to the second LDI value; and

the present window of LDI values containing a plurality of present LDI values disposed in time proximity to the first LDI value; and

wherein the determining the LDI rate of change is performed based on the past window of past LDI values and the present window of present LDI values, the determining the LDI rate of change based on the past window of LDI values and the present window of LDI values includes smoothing the second LDI value and smoothing the first LDI value to respectively generate a past smoothed value and a present smoothed value; and

wherein the past smoothed value is compared with the present smoothed value to provide the LDI slope value.

27. The method of claim 26, further including plotting the LDI slope value and the first LDI value onto a two-dimensional risk space, which is divided into zones based on LDI threshold values and LDI slope value thresholds.

28. A computer readable memory for directing the operation of a processing system to determine the likelihood of default of an entity, the computer readable memory comprising:

a first portion that stores a data set relating to an entity, the data set including at least a first likelihood of default indicator (LDI) value and a second LDI value, the first LDI value being a present day value and the second LDI value being a past day value;

a second portion to determine a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value; and

a third portion to determine the likelihood of default of the entity based on the LDI slope value and the first LDI value, the first LDI value being a present value; and

wherein the data set further includes a past window of LDI values and a present window of LDI values;

the past window of LDI values containing a plurality of past LDI values disposed in time proximity to the second LDI value; and

the present window of LDI values containing a plurality of present LDI values disposed in time proximity to the first LDI value, the second portion determining the LDI rate of change based on the past window of past LDI values and the present window of present LDI values by smoothing the second LDI value and smoothing the first LDI value; and

smoothing the second LDI value results in the generation of a past smoothed value; and

smoothing the first LDI value results in the generation of a present smoothed value; and

wherein the second portion compares the past smoothed value with the present smoothed value to provide the LDI slope value.

29. A system for determining the likelihood of default of an entity, the system comprising:

a memory portion that stores a data set relating to an entity, the data set including at least a first likelihood of default indicator (LDI) value and a second LDI value, the first LDI value is a present day value and the second LDI value is a past day value;

a slope determination portion that determines a LDI rate of change, based on the first LDI value and the second LDI value, to provide a LDI slope value; and

an assessment portion to determine the likelihood of default of the entity based on the LDI slope value and the first LDI value; and

wherein the data set further includes a past window of LDI values and a present window of LDI values;

the past window of LDI values containing a plurality of past LDI values disposed in time proximity to the second LDI value; and

the present window of LDI values containing a plurality of present LDI values disposed in time proximity to the first LDI value; and

wherein the slope determination portion determines the LDI rate of change based on the past window of past LDI values and the present window of present LDI values, the slope determination portion determining the LDI rate of change based on the past window of LDI values and the present window of LDI values includes smoothing the second LDI value and smoothing the first LDI value; and

wherein;

smoothing the second LDI value results in the generation of a past smoothed value; and

smoothing the first LDI value results in the generation of a present smoothed value; and

wherein the slope determination portion compares the past smoothed value with the present smoothed value to provide the LDI slope value, the comparing the past smoothed value with the present smoothed value to determine the LDI rate of change includes using a relationship;

LDI rate of change=100×

(present smoothed value−

past smoothed value)/past smoothed value.