Bayesian Methods for Improving Credit Scoring Models

We propose a Bayesian methodology that enables banks to improve their credit scoring models by imposing prior information. As prior information, we use coefficients from credit scoring models estimated on other data sets. Through simulations, we explore the default prediction power of three Bayesian estimators in three different scenarios and find that they perform better than standard maximum likelihood estimates. We recommend that banks consider Bayesian estimation for internal and regulatory default prediction models.Credit Scoring, Bayesian Inference, Bankruptcy Prediction

Elephants can always remember: Exact long-range memory effects in a non-Markovian random walk

We consider a discrete-time random walk where the random increment at time step $t$ depends on the full history of the process. We calculate exactly the mean and variance of the position and discuss its dependence on the initial condition and on the memory parameter $p$. At a critical value $p_c^{(1)}=1/2$ where memory effects vanish there is a transition from a weakly localized regime (where the walker returns to its starting point) to an escape regime. Inside the escape regime there is a second critical value where the random walk becomes superdiffusive. The probability distribution is shown to be governed by a non-Markovian Fokker-Planck equation with hopping rates that depend both on time and on the starting position of the walk. On large scales the memory organizes itself into an effective harmonic oscillator potential for the random walker with a time-dependent spring constant $k = (2p-1)/t$. The solution of this problem is a Gaussian distribution with time-dependent mean and variance which both depend on the initiation of the process.Comment: 10 page

Some Effects of Hurricanes on the Terrestrial Biota, With Special Reference to Camille

There have been very few articles concerning the effects of hurricanes upon marine and shore organisms. Some effects on fishes have been described by Hubbs (1962) and in that paper he reviewed some of the previous references. Information on animals killed or injured by hurricanes is scarce because potential observers in areas where they strike are generally more concerned with practical personal matters than biological studies right after a bad storm. The senior author has been in or very close to seven West India hurricanes as they came ashore. Each time he was somewhat forewarned and had determined to make some type of quantitative appraisal of killed animals following these storms. However, on no occasion has this been done. Nevertheless, the two writers have collected some fragmentary information worth recording

Some Effects of Hurricanes on the Terrestrial Biota, With Special Reference to Camille (Reprint)

This is a verbatim reprinting of the paper with the same title published in Volume 3, Number 2 of this journal, which was so improperly laid out that reprints with the plates could not be made and the legends were missing

Some Effects of Hurricanes on the Terrestrial Biota, With Special Reference to Camille (Reprint)

This is a verbatim reprinting of the paper with the same title published in Volume 3, Number 2 of this journal, which was so improperly laid out that reprints with the plates could not be made and the legends were missing

How do Rating Agencies Score in Predicting Firm Performance

We use dynamic panel analysis to examine whether credit rating agencies achieve what they claim to achieve, namely, look into the future when assigning their ratings. We find that Moody's ratings help predict individual financial ratios over a horizon of up to five years. Ratings also predict a multivariate credit score, again over five years. The contribution of ratings appears to be economically significant and robust for different specifications.Credit Ratings, Predictive ability, Dynamic Panel Model.

Program logics for homogeneous meta-programming.

A meta-program is a program that generates or manipulates another program; in homogeneous meta-programming, a program may generate new parts of, or manipulate, itself. Meta-programming has been used extensively since macros were introduced to Lisp, yet we have little idea how formally to reason about metaprograms. This paper provides the first program logics for homogeneous metaprogramming – using a variant of MiniMLe by Davies and Pfenning as underlying meta-programming language.We show the applicability of our approach by reasoning about example meta-programs from the literature. We also demonstrate that our logics are relatively complete in the sense of Cook, enable the inductive derivation of characteristic formulae, and exactly capture the observational properties induced by the operational semantics

Predatory short sales and bailouts

This paper extends the literature on predatory short selling and bailouts through a joint analysis of the two. We consider a model with informed short sales, as well as uninformed predatory short sales, which can trigger the inefficient liquidation of a firm. We obtain several novel results: A government commitment to bail out insolvent firms with positive probability can increase welfare because it selectively deters predatory short selling without hampering desirable informed short sales. Contrasting a common view, bailouts can be optimal ex ante but undesirable ex post. Furthermore, bailouts in our model are a better policy tool than short selling restrictions. Welfare gains from the bailout policy are unevenly distributed: shareholders gain while taxpayers lose. Bailout taxes allow ex-ante Pareto improvements

Machine-Checked Proofs For Realizability Checking Algorithms

Virtual integration techniques focus on building architectural models of systems that can be analyzed early in the design cycle to try to lower cost, reduce risk, and improve quality of complex embedded systems. Given appropriate architectural descriptions, assume/guarantee contracts, and compositional reasoning rules, these techniques can be used to prove important safety properties about the architecture prior to system construction. For these proofs to be meaningful, each leaf-level component contract must be realizable; i.e., it is possible to construct a component such that for any input allowed by the contract assumptions, there is some output value that the component can produce that satisfies the contract guarantees. We have recently proposed (in [1]) a contract-based realizability checking algorithm for assume/guarantee contracts over infinite theories supported by SMT solvers such as linear integer/real arithmetic and uninterpreted functions. In that work, we used an SMT solver and an algorithm similar to k-induction to establish the realizability of a contract, and justified our approach via a hand proof. Given the central importance of realizability to our virtual integration approach, we wanted additional confidence that our approach was sound. This paper describes a complete formalization of the approach in the Coq proof and specification language. During formalization, we found several small mistakes and missing assumptions in our reasoning. Although these did not compromise the correctness of the algorithm used in the checking tools, they point to the value of machine-checked formalization. In addition, we believe this is the first machine-checked formalization for a realizability algorithm.Comment: 14 pages, 1 figur