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Douglas heads the Moody’s Analytics Single Obligor Research Group. This group produces credit risk metrics of small businesses, medium-sized enterprises, large corporations, financial institutions, and sovereigns worldwide. The group’s models are used by banks, asset managers, insurance companies, accounting firms, and corporations to measure name-specific credit risk for a wide variety of purposes. We measure credit risk using information drawn from financial statements, regulatory filings, security prices, derivative contracts, and behavioral and payment information. Previously, Doug was a principal at William M. Mercer, Inc. He has a PhD from Columbia University and a BA from Oberlin College, both in economics.

Validating and Understanding a Highly Nonlinear Machine Learning Model

Presentation from Moody’s Analytics Summit 2018

November 2018

This presentation provides an overview of the components, aspects, and validation of a highly nonlinear machine learning model.

Related Insights

Sovereign & Size-Adjusted EDF-Implied Rating Template (for Private Firms)

RiskCalc™ EDF™ (Expected Default Frequency) values and agency ratings are widely used credit risk measures. RiskCalc EDF values typically measure default risk for private companies, while agency ratings are only available for rated companies. A RiskCalc EDF value measures a company's standalone credit risk based on financial statement information, while an agency rating considers qualitative factors such as Business Profile, Financial Policy, external support, and country-related risks. Moody's Analytics new Sovereign & Size-Adjusted EDF-Implied Rating Template combines RiskCalc EDF values with additional factors to provide a rating comparable to agency ratings for private companies. The new template applies to RiskCalc EDF values across numerous geographies and regulatory environments. With the new template, users can generate a rating more comparable to an agency rating than RiskCalc EDF values or EDF-implied ratings. Analyzing data from 3,900+ companies in 60+ countries, we find that sovereign rating and total asset size, in addition to EDF value, have a statistically significant impact on an agency rating — our quantitative template incorporating these three variables reliably estimates agency ratings in a robust fashion.

December 2018 Pdf Maria Buitrago, Uliana Makarov, Dr. Janet Zhao, Dr. Douglas Dwyer

Identifying At-Risk Firms in Your Private Firm Portfolio

Identifying At-Risk Firms in Your Private Firm Portfolio

October 2018 Pdf Dr. Douglas Dwyer, Gustavo Jimenez, Ziyi Sun

Features of a Lifetime PD Model: Evidence from Public, Private, and Rated Firms

With the new CECL and IFRS 9 requirements, we see an increased need for lifetime probability of default models. In this document, we formally investigate and summarize the term structure properties consistently seen across public, private, and rated firms. We observe that the default rate for “good” firms tends to increase over time, while the default rate for “bad” firms decreases over time, an indication of the mean-reversion effect seen with firms' default risk.

May 2018 Pdf Sajjad Beygiharchegani, Uliana Makarov, Dr. Janet Zhao, Dr. Douglas Dwyer

Combining Financial and Behavioral Information to Predict Defaults for Small and Medium-Sized Enterprises – A Dynamic Weighting Approach

One large challenge lenders currently face is how to combine different types of information into metrics that can support good business decisions. Currently, the banking industry uses two primary types of information — financial information and behavioral information — independently, to assess risk. Financial information includes Income Statement, Balance Sheet, Cash Flow, and Financial Ratios. Behavioral information includes spending and payment patterns, among others. Both types of information provide unique insights, but, to date, they have not been combined to generate one comprehensive risk metric for commercial use.

September 2017 Pdf Alessio Balduini, Dr. Douglas Dwyer, Dr. Janet Zhao, Sara Gianfreda, Reeta Hemminki, Lucia Yang

Combining Information to Better Assess the Credit Risk of Small Firms and Medium-Sized Enterprises

In this article, we discuss the issues associated with acquiring behavioral and financial data and transforming it into a business decision. We also present a unified modeling approach for combining the information into a credit risk assessment for both small firms and medium-sized enterprises.

July 2017 Pdf Dr. Douglas Dwyer

Combining Information to Better Assess the Credit Risk of Small Firms and Medium-Sized Enterprises

In this article, we combine financial information with behavioral factors to more accurately assess credit risk for small firms and medium-sized enterprises.

July 2017 WebPage Dr. Douglas Dwyer

RiskCalc Banks v4.0 Model

There has been a significant increase in the demand for quantitative tools that assess the default risk of banks across different geographies. Pooling data from more than 90 countries, we see commonalities in linking default risk to a specific set of financial ratios. This finding suggests that a prescribed set of financial ratios, properly transformed, works well in estimating banks' default risk in a robust fashion. With this insight, we constructed the RiskCalc™ Banks v4.0 Model, intended for assessing the probability of default (PD) for banks across different geographies and regulatory environments. The model provides a unified framework to assess bank risk across different countries and regions, as well as different economic cycles. The one-year model is based upon a set of well-defined and ready-to-calculate financial ratios that effectively measure bank profitability, leverage, liquidity, growth, and asset quality. The five-year model combines these ratios with a measure derived from an economic capital framework based upon portfolio theory. Specifically, this measure captures the unexpected loss of a bank's loan portfolio relative to its loss-absorbing capital. Validation results show that the model delivers strong and robust power in rank ordering high risk banks from low risk banks, and that the results are robust across geographies and bank sizes.

July 2016 Pdf Dr. Douglas Dwyer, Dr. Janet Zhao, Yanruo Wang

Do Banks Need Third-Party Models?

This article discusses the role of third-party data and analytics in the stress testing process. Beyond the simple argument that more eyes are better, we outline why some stress testing activities should definitely be conducted by third parties.

December 11, 2015 WebPage Dr. Douglas Dwyer, Dr. Tony Hughes

Credit Risk Modeling of Public Firms: EDF9

EDF9 — the 9th generation of the Moody's Analytics Public Firm EDFTM (Expected Default Frequency) model — expands the frontiers of structural credit risk modeling. EDF metrics are forward-looking probabilities of default, available on a daily basis for 35,000-plus corporate and financial firms. The updated EDF9 model incorporates insights attained by evaluating the behavior of the prior version, EDF8, over the course of the recent financial and sovereign debt crises.

June 2015 Pdf Dr. Douglas Dwyer, Pooya Nazeran

May 2015 U.S. Middle Market Risk Report

This semiannual report examines credit risk in the otherwise opaque U.S. private firm credit market. We report trends in 4 different areas of risk measurement.

May 2015 Pdf Stephanie Yu, Brian Waldman, Irina Korablev, Stafford Perkins, Dr. Douglas Dwyer
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