06-08-2016 03:45 AM
06-08-2016 04:17 AM
Well I don't think there are any hard and fast rules on this. It also depends how your data behaves and whether you want to take into account both good and bad economic conditions. For example if you only use data from 12 months, say 2015, when economic conditions are good, would your behaviour score model also work when times are bad, like 2006/2007 (GFC)?
If you want your model to work over a variety of economic conditions then you need to use observational data from those periods, so I'd say you need at least 5 years data and probably more for long-term mortgage products. What you may also find is that getting enough overdue events to build a highly predictive model may be hard when times are good but definitely not so hard in adverse conditions.
The outcome period should match what you are trying to predict. For example where I work we need to predict the probability of going into default (90 days past due) in the next 12 months. That means we need to look forward 13 months from the observation point and see if the loan went into default in any of those months.