How do you test whether a new credit risk scoring model works?

How do you test whether a new credit risk scoring model works?



-Test on a holdout set
-Kolmogorov-Smirnov test

Kolmogorov-Smirnov test:
- Non-parametric test
- Compare a sample with a reference probability distribution or compare two samples
- Quantifies a distance between the empirical distribution function of the sample and the cumulative distribution function of the reference distribution
- Or between the empirical distribution functions of two samples
- Null hypothesis (two-samples test): samples are drawn from the same distribution
- Can be modified as a goodness of fit test
- In our case: cumulative percentages of good, cumulative percentages of bad

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