Entropy (Aug 2022)

The Advantage of Case-Tailored Information Metrics for the Development of Predictive Models, Calculated Profit in Credit Scoring

  • Daniel Chrościcki,
  • Marcin Chlebus

DOI
https://doi.org/10.3390/e24091218
Journal volume & issue
Vol. 24, no. 9
p. 1218

Abstract

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This paper compares model development strategies based on different performance metrics. The study was conducted in the area of credit risk modeling with the usage of diverse metrics, including general-purpose Area Under the ROC curve (AUC), problem-dedicated Expected Maximum Profit (EMP) and the novel case-tailored Calculated Profit (CP). The metrics were used to optimize competitive credit risk scoring models based on two predictive algorithms that are widely used in the financial industry: Logistic Regression and extreme gradient boosting machine (XGBoost). A dataset provided by the American Fannie Mae agency was utilized to conduct the study. In addition to the baseline study, the paper also includes a stability analysis. In each case examined the proposed CP metric that allowed us to achieve the most profitable loan portfolio.

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