Discuss logistic regression limitations for PD

Q: Discuss logistic regression limitations for PD

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Question

Limitations of Logistic Regression for PD (Probability of Default) Modeling

Context

You are building a credit risk Probability of Default (PD) model with logistic regression. Discuss its limitations and trade-offs.

Prompt

Explain the limitations of logistic regression for PD modeling, focusing on:

Assumption of linearity in the log-odds
Interactions between predictors
Multicollinearity among predictors
Class imbalance and rare events
Probability calibration
Interpretability versus flexibility

Where relevant, note common mitigations used in practice.

Discuss logistic regression limitations for PD

Limitations of Logistic Regression for PD (Probability of Default) Modeling

Context

Prompt

Solution (Locked)

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