Financial Risk Manager Part 2
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About the cumulative accuracy profile (CAP), each of the following statements is true except which is not?
A
A perfect credit scoring model generates an accuracy ratio (AR) of 1.0, which is the upper bound on the AR.
B
A purely random model that cannot differentiate between good and bad customers is likely to generate an accuracy ratio (AR) of 0.40 to 0.60; i.e., 50% +/- 10%.
C
The CAP curve, which plots the actual rating model as a cumulative percentage of defaults, is monotonically increasing (aka, nondecreasing or weakly increasing).
D
The CAP curve plots the fraction of defaulted customers (y axis) against the fraction of entire customer population sorted by score from highest risk (left) to lowest risk (right).