Gini, Cumulative Accuracy Profile, AUC

In this article, we have covered how to calculate Gini Coefficient, Cumulative Accuracy Profile (CAP) and Area under Curve (AUC) of a predictive model. The purpose of this article is to explain these concepts in simple terms so that layman can understand the mathematics behind it.
Importance of these methods
These methods measure discriminatory power of a predictive model. Discriminatory power implies whether predictive model is able to distinguish between events (desired outcome) and non-events. In credit risk modeling, it evaluates whether the probability of default model is able to separate good and bad customers. These two metrics Cumulative Accuracy Profile and Gini Coefficient are more common in credit risk analytics as compared to other domains.
Table of Contents

Cumulative Accuracy Profile (CAP)

Cumulative Accuracy profile (CAP) of a credit rating model shows percentage of all borrowers (debtors) on the x-axis and the percentage of defaulters (bad customers) on the y-axis. In marketing analytics, it is called Gain Chart. It is also called Power Curve in some other domains.
Accuracy Ratio
By using CAP, you can compare the curve of your current model to the curve of 'ideal or perfect' model and can also compare it with the curve of random model. 'Perfect model' refers to the ideal state in which all the bad customers (desired outcome) can be captured directly. 'Random model' refers to the state in which the proportion of bad customers are distributed equally. 'Current Model' refers to your probability of default model (or any other model you are working on). We always try to build the model which leans toward (closer) to the curve of perfect model. We can read current model as '% of bad customers covered at a given decile level'. For example, 89% of bad customers captured by just selecting top 30% of debtors based on model.
Steps to create Cumulative Accuracy Profile curve
  1. Sort estimated probability of default in descending order and split it in 10 parts (decile). It means riskiest borrowers with high PD should be at top decile and safest borrowers should appear at bottom decile. Splitting score in 10 parts is not a thumb rule. Instead you can use rating grade.
  2. Calculate number of borrowers (observations) in each decile
  3. Calculate number of bad customers in each decile
  4. Calculate cumulative Number of bad customers in each decile
  5. Calculate percentage of bad customers in each decile
  6. Calculate cumulative percentage of bad customers in each decile
Cumulative Accuracy Profile Current Model

Till now, we have done calculation based on the PD model (Remember first step is based on the probabilities obtained from PD model).

Next step : What should be the number of bad customers in each decile based on perfect model?

  1. In perfect model, First decile should capture all the bad customers as first decile refers to worst rating grade OR borrowers with highest likelihood to default. In our case, first decile cannot capture all the bad customers as number of borrowers fall in the first decile is less than the total number of bad customers.
  2. Calculate cumulative number of bad customers in each decile based on perfect model
  3. Calculate cumulative % of bad customers in each decile based on perfect model

Next step : Calculate the cumulative percentage of bad customers in each decile based on random model In random model, each decile should constitute 10%. When we calculate cumulative %, it will be 10% in decile 1, 20% in decile 2 and so on till 100% in decile 10.
Cumulative Accuracy Profile Random Model

Next step : Create a plot with Cumulative % of Bads based on Current, Random and Perfect Model. In x axis, it shows percentage of borrowers (observations) and y axis represents percentage of Bad Customers.

Accuracy Ratio

In the case of CAP (Cumulative Accuracy Profile), Accuracy ratio is the ratio of the area between your current predictive model and the diagonal line and the area between the perfect model and the diagonal line. In other words, it is the ratio of the performance improvement of the current model over the random model to the performance improvement of the perfect model over the random model.
Accuracy Ratio
How to calculate Accuracy Ratio
accuracy Ratio
First step is to calculate area between current model and diagonal line. We can compute area below current model (including area below diagonal line) by using Trapezoidal Rule Numerical Integration method. The area of a trapezoid is
( xi+1 – xi ) * ( yi + yi+1 ) * 0.5
( xi+1 – xi ) is the width of subinterval and (yi + yi+1)*0.5 is the average height.
In this case, x refers to values of cumulative proportion of borrowers at different decile levels and y refers to cumulative proportion of bad customers at different decile levels. Value of x0 and y0 is 0.

Once above step is completed, next step is to subtract 0.5 from the area returned from the previous step. You must be wondering relevance of 0.5. It is the area below diagonal line. We are subtracting because we only need area between current model and diagonal line (let's call it B).

Now we need denominator which is the area between perfect model and diagonal line, A + B. It is equivalent to 0.5*(1 - Prob(Bad)). See all the calculation steps shown in the table below -

accuracy ratio calculation
Denominator of AR can also be computed like we performed calculation for numerator. It means calculating area using "Cumulative % of Borrowers" and "Cumulative % of Bads (Perfect Model)" and then subtracting 0.5 from it since we don't need to consider area below the diagonal line.
The above method of calculating accuracy ratio (AR) is approximation as we considered data in 10 bins (ratings) and remember number of bins is not equal to number of data points. Don't need to scratch your head - Calculation steps are same. It's just we need to apply them in raw values instead of ratings (binned / decile) to get exact AR. Refer below for exact estimation.

In the R code below, we prepared sample data for example. Variable name pred refers to predicted probabilities. Variable y refers to dependent variable (actual event). We only need these two variables to calculate Accuracy Ratio.


# Sample Data for demonstration
mydata = data.frame(pred = c(0.6,0.1,0.8,0.3,0.5,0.6,0.4,0.3,0.5), 
                        y = c(1,0,1,0,1,1,0,1,0))

# Sort data in descending order of predicted prob.
mydata %<>% arrange(desc(pred))

# Cumulative % Borrowers
random = 1:length(mydata$pred)/length(mydata$pred)

# Cumulative % of Bads
cumpercentbad = cumsum(mydata$y)/sum(mydata$y)

# Calculate AR
random = c(0,random)
cumpercentbad = c(0,cumpercentbad)
idx = 2:length(cumpercentbad)
testdf=data.frame(cumpercentpop = (random[idx] - random[idx-1]), 
                  cumpercentbad = (cumpercentbad[idx] + cumpercentbad[idx-1]))
Area = sum(testdf$cumpercentbad * testdf$cumpercentpop/2)
Numerator = Area - 0.5
Denominator = 0.5*(1-mean(mydata$y))
(AR = Numerator / Denominator)

Gini Coefficient

Gini coefficient is very similar to CAP but it shows proportion (cumulative) of good customers instead of all customers. It shows the extent to which the model has better classification capabilities in comparison to the random model. It is also called Gini Index. Gini Coefficient can take values between -1 and 1. Negative values correspond to a model with reversed meanings of scores.
Gini Coefficient
Gini = B / (A+B). Or Gini = 2B since Area of A + B is 0.5
See the calculation steps of Gini Coefficient below :
By rejecting x% of good customers, what percentage of bad customers we reject alongside.
Gini coefficient is a special case of Somer's D statistics. If you have concordance and discordance percent, you can compute Gini Coefficient.

Gini Coefficient = (Concordance percent - Discordance Percent)

Concordance percent refers to proportion of pairs where defaulters have a higher predicted probability than the good customers.
Discordance percent refers to proportion of pairs where defaulters have a lower predicted probability than the good customers.

Another way of calculating Gini Coefficient is using concordance and discordance percent (as explained above). Refer the R code below.
ModelPerformance <- function (actuals, predictedScores){
  fitted <- data.frame (Actuals=actuals, PredictedScores=predictedScores) # actuals and fitted
  colnames(fitted) <- c('Actuals','PredictedScores') # rename columns
  ones <- fitted[fitted$Actuals==1, ] # Subset ones
  zeros <- fitted[fitted$Actuals==0, ] # Subsetzeros
  totalPairs <- nrow (ones) * nrow (zeros) # calculate total number of pairs to check
  # A pair is concordant if 1 (event) has a higher predicted probability than 0   
  conc <- sum (c(vapply(ones$PredictedScores, function(x) {((x > zeros$PredictedScores))}, FUN.VALUE=logical(nrow(zeros)))), na.rm=T)
  # A pair is disconcordant if 1 (event) has a lower predicted probability than 0
  disc <- sum(c(vapply(ones$PredictedScores, function(x) {((x < zeros$PredictedScores))}, FUN.VALUE = logical(nrow(zeros)))), na.rm = T)
  # Calculate concordance, discordance, ties and AUC
  concordance <- conc/totalPairs
  discordance <- disc/totalPairs
  tiesPercent <- (1-concordance-discordance)
  Gini = (conc-disc)/totalPairs
  AUC  = concordance + 0.5*tiesPercent
  return(list("Concordance"=concordance, "Discordance"=discordance,
              "Tied"=tiesPercent, "Gini"= Gini,"AUC"=AUC))

ModelPerformance(mydata$y, mydata$pred)

Are Gini Coefficient and Accuracy Ratio equivalent?

Yes, they are always equal. Hence Gini Coefficient is sometimes called Accuracy Ratio (AR).

Yes, I know axes in Gini and AR are different. Question arises how they are still same. If you solve the equation, you would find Area B in Gini Coefficient is same as Area B / Prob(Good) in Accuracy Ratio (which is equivalent to (1/2)*AR ). Multiplying both sides by 2, you will get Gini = 2*B and AR = Area B / (Area A + B)

Area under ROC Curve (AUC)

AUC or ROC curve shows proportion of true positives (defaulter is correctly classified as a defaulter) versus the proportion of false positives (non-defaulter is wrongly classified as a defaulter).
roc curve
AUC score is the summation of all the individual values calculated at rating grade or decile level.
4 Methods to calculate AUC Mathematically

Relationship between AUC and Gini Coefficient

Gini = 2*AUC - 1.
You must be wondering how they are related.

If you reverse the axis of chart shown in the above section named "Gini Coefficient", you would get similar to the chart below. Here Gini = B / (A + B). Area of A + B is 0.5 so Gini = B / 0.5 which simplifies to Gini = 2*B. AUC = B + 0.5 which further simplifies to B = AUC - 0.5. Put this equation in Gini = 2*B
Gini = 2*(AUC - 0.5)
Gini = 2*AUC - 1

AUC and Gini
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About Author:

Deepanshu founded ListenData with a simple objective - Make analytics easy to understand and follow. He has over 10 years of experience in data science. During his tenure, he has worked with global clients in various domains like Banking, Insurance, Private Equity, Telecom and Human Resource.

7 Responses to "Gini, Cumulative Accuracy Profile, AUC"
  1. Thanks for this post. I have been waiting for this post.
    Just wanted to reconfirm AR and Gini values will be same for any number of defaults.

    1. Yes, it will be same even for low default portfolios.

    2. Thanks for the clarification.

  2. I really appreciate the post, it was concise and most helpful.
    Please can you include your own/other references at the end.
    I'm busy doing a study on low/high defaults credit models and would also love to read more.
    It would much be appreciated.

    Thank you very much :)

  3. Hey good explanations there! But is it true that (A + B) is theoretically less than 0.5 as long as there are defaulters? In other words, AR and Gini are not always equal?

  4. Hi Deepanshu! Thank you for this very informative content.

    Hope you could expound further on this:
    GINI: Negative values correspond to a model with reversed meanings of scores.

    How do I actually interpret the model with negative Gini? Is this actually inconclusive?

  5. Hi,
    Could you please tell me the significance of Gino over KS?


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