Article ID: | iaor20117903 |
Volume: | 188 |
Issue: | 1 |
Start Page Number: | 185 |
End Page Number: | 213 |
Publication Date: | Aug 2011 |
Journal: | Annals of Operations Research |
Authors: | Lejeune A, Hammer L, Kogan A |
Keywords: | economics |
The central objective of this paper is to develop a transparent, consistent, self‐contained, and stable country risk rating model, closely approximating the country risk ratings provided by Standard and Poor’s (S&P). The model should be non‐recursive, i.e., it should not rely on the previous years’ S&P ratings. The set of variables selected here includes not only economic‐financial but also political variables. We propose a new model based on the novel combinatorial‐logical technique of Logical Analysis of Data (which derives a new rating system only from the qualitative information representing pairwise comparisons of country riskiness). We also develop a method allowing to derive a rating system that has any desired level of granularity. The accuracy of the proposed model’s predictions, measured by its correlation coefficients with the S&P ratings, and confirmed by