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Country credit-risk rating aggregation via the separation-deviation model. (English) Zbl 1154.90335
Summary: Country credit-risk ratings are evaluated independently by several agencies. A common method of aggregating the ratings into a single rating is by taking their averages (the averaging method). We show here that an approach that captures the relative ranking of the countries given by each agency leads to an improved aggregate rating with respect to several criteria. The approach we use - the separation-deviation model - was proposed by Hochbaum. We compare the separation-deviation model with the averaging method for aggregating country credit-risk ratings provided by three different agencies. We show that the aggregate rating obtained by the separation-deviation model has fewer rank reversals (discrepancies in the rank ordering of the countries) than the aggregate rating obtained by the averaging method. We further prove several properties of the separation-deviation model, including the property that the aggregate rating obtained by the separation-deviation model agrees with the majority of agencies or reviewers, regardless of the scale used.

MSC:
90B18 Communication networks in operations research
91B30 Risk theory, insurance (MSC2010)
90B50 Management decision making, including multiple objectives
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