Portfolio Stability Index

Definition

Portfolio Stability Index (PSI, more general: Population Stability Index) is a measure of the divergence of frequency distributions between two samples (typically over time)

Usage

The index is used to measure the divergence between a development sample and the current portfolio as part of monitoring or Credit Scorecard Validation.

Formula

${\mbox{PSI}}=\sum _{i}({\frac {A_{i}}{A_{T}}}-{\frac {M_{i}}{M_{T}}})log({\frac {\frac {A_{i}}{A_{T}}}{\frac {M_{i}}{M_{T}}}})$

where

• $i$ is the i-th Credit Score band
• $A_{i}$ is actual default rate for class i
• $M_{i}$ is modelled default rate for class i
• $A_{T},M_{T}$ are the total actual and modelled default rates respectively

See Also

• Information Statistic