Difference between revisions of "Explanatory Variables"
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== Definition == | == Definition == | ||
| − | '''Explanatory Variables''' (also Characteristics, Attributes) is the set of variables (for example ratios, scalar numerical values or boolean indicators) that are used in the context of a statistical [[Risk Model]] to ''explain'' (and thus forecast) random behaviour. | + | '''Explanatory Variables''' (also Characteristics, Attributes) is the set of variables (for example ratios, scalar numerical values or boolean indicators) that are used in the context of a statistical [[Risk Model]] to ''explain'' (and thus potentially also forecast) random behaviour. |
== Examples == | == Examples == | ||
| Line 12: | Line 12: | ||
== See Also == | == See Also == | ||
| + | * [[Casual Chain]] | ||
* Variable Types: [[Categorical Variable]], [[Numerical Variable]] | * Variable Types: [[Categorical Variable]], [[Numerical Variable]] | ||
* [[Dummy Variable]] | * [[Dummy Variable]] | ||
Latest revision as of 12:27, 27 October 2021
Definition
Explanatory Variables (also Characteristics, Attributes) is the set of variables (for example ratios, scalar numerical values or boolean indicators) that are used in the context of a statistical Risk Model to explain (and thus potentially also forecast) random behaviour.
Examples
- Credit Score Factors are typical explanatory variables using in Credit Scoring Models
- In corporate credit models explanatory variables typically include financial ratios obtained from Balance Sheet / Accounting data such as Profitability, Leverage, Liquidity, Debt Coverage etc.
- In retail credit models they typically encompass demographic information, wealth indicators etc.
Issues and Challenges
- There is no scientific means of certifying that the set of explanatory variables is comprehensive (includes all variables with explanatory power). It rests with domain experts to validate this aspect
- The adjective explanatory puts emphasis on causal relationships, in practice a Characteristic may be used without a clear view on causal influence
