CORPORATE DEFAULT PREDICTION MODEL AVERAGING: A NORMATIVE LINEAR POOLING APPROACH

Focusing on credit risk modelling, this paper introduces a novel approach for ensemble modelling based on a normative linear pooling. Models are first classified as dominant and competitive, and the pooling is run using the competitive models only. Numerical experiments based on parametric (logit, Bayesian model averaging) and non-parametric (classification tree, random forest, bagging, boosting) model comparison shows that the proposed ensemble performs better than alternative approaches, in particular when different modelling cultures are mixed together (logit and classification tree). Copyright (C) 2016 John Wiley & Sons, Ltd.