A literature review on the application of evolutionary computing to credit scoring

The last years have seen the development of many credit scoring models for assessing the creditworthiness of loan applicants. Traditional credit scoring methodology has involved the use of statistical and mathematical programming techniques such as discriminant analysis, linear and logistic regression, linear and quadratic programming, or decision trees. However, the importance of credit grant decisions for financial institutions has caused growing interest in using a variety of computational intelligence techniques. This paper concentrates on evolutionary computing, which is viewed as one of the most promising paradigms of computational intelligence. Taking into account the synergistic relationship between the communities of Economics and Computer Science, the aim of this paper is to summarize the most recent developments in the application of evolutionary algorithms to credit scoring by means of a thorough review of scientific articles published during the period 2000–2012.This work has partially been supported by the Spanish Ministry of Education and Science under grant TIN2009-14205 and the Generalitat Valenciana under grant PROMETEO/2010/028

Applications of Nature-Inspired Algorithms for Dimension Reduction: Enabling Efficient Data Analytics

In [1], we have explored the theoretical aspects of feature selection and evolutionary algorithms. In this chapter, we focus on optimization algorithms for enhancing data analytic process, i.e., we propose to explore applications of nature-inspired algorithms in data science. Feature selection optimization is a hybrid approach leveraging feature selection techniques and evolutionary algorithms process to optimize the selected features. Prior works solve this problem iteratively to converge to an optimal feature subset. Feature selection optimization is a non-specific domain approach. Data scientists mainly attempt to find an advanced way to analyze data n with high computational efficiency and low time complexity, leading to efficient data analytics. Thus, by increasing generated/measured/sensed data from various sources, analysis, manipulation and illustration of data grow exponentially. Due to the large scale data sets, Curse of dimensionality (CoD) is one of the NP-hard problems in data science. Hence, several efforts have been focused on leveraging evolutionary algorithms (EAs) to address the complex issues in large scale data analytics problems. Dimension reduction, together with EAs, lends itself to solve CoD and solve complex problems, in terms of time complexity, efficiently. In this chapter, we first provide a brief overview of previous studies that focused on solving CoD using feature extraction optimization process. We then discuss practical examples of research studies are successfully tackled some application domains, such as image processing, sentiment analysis, network traffics / anomalies analysis, credit score analysis and other benchmark functions/data sets analysis

Efficient Multi-Classifier Wrapper Feature-Selection Model: Application for Dimension Reduction in Credit Scoring

The task of identifying most relevant features for a credit scoring application is a challenging task. Reducing the number of redundant and unwanted features is an inevitable task to improve the performance of the credit scoring model. The wrappers approach is usually used in credit scoring applications to identify the most relevant features. However, this approach suffers from the issue of subsets generation and the use of a single classifier as an evaluation function. The problem here is that each classifier may give different results which can be interpreted differently. Hence, we propose in this study an ensemble wrapper feature selection model which is based on a multi-classifiers combination. In a first stage, we address the problem of subsets generation by minimizing the search space through a customized heuristic. Then, a multi-classifier wrapper evaluation is applied using two classifier arrangement approaches in order to select a set of mutually approved set of relevant features. The proposed method is evaluated on four credit datasets and has shown a good performance compared to individual classifiers results

Data mining in computational finance

Computational finance is a relatively new discipline whose birth can be traced back to early 1950s. Its major objective is to develop and study practical models focusing on techniques that apply directly to financial analyses. The large number of decisions and computationally intensive problems involved in this discipline make data mining and machine learning models an integral part to improve, automate, and expand the current processes. One of the objectives of this research is to present a state-of-the-art of the data mining and machine learning techniques applied in the core areas of computational finance. Next, detailed analysis of public and private finance datasets is performed in an attempt to find interesting facts from data and draw conclusions regarding the usefulness of features within the datasets. Credit risk evaluation is one of the crucial modern concerns in this field. Credit scoring is essentially a classification problem where models are built using the information about past applicants to categorise new applicants as ‘creditworthy’ or ‘non-creditworthy’. We appraise the performance of a few classical machine learning algorithms for the problem of credit scoring. Typically, credit scoring databases are large and characterised by redundant and irrelevant features, making the classification task more computationally-demanding. Feature selection is the process of selecting an optimal subset of relevant features. We propose an improved information-gain directed wrapper feature selection method using genetic algorithms and successfully evaluate its effectiveness against baseline and generic wrapper methods using three benchmark datasets. One of the tasks of financial analysts is to estimate a company’s worth. In the last piece of work, this study predicts the growth rate for earnings of companies using three machine learning techniques. We employed the technique of lagged features, which allowed varying amounts of recent history to be brought into the prediction task, and transformed the time series forecasting problem into a supervised learning problem. This work was applied on a private time series dataset

Interactive product catalogue with user preference tracking

In the context of m-commerce, small screen size poses serious difficulty for users to browse effectively through a product catalogue, given the limited number of products that may be presented on-screen. Despite the availability of search engines, filters and recommender systems to aid users, these techniques focus on a narrow segment of product offering. The users are thus denied the opportunity to do a more expansive exploration of the products available. This paper describes a novel approach to overcome the constraints of small screen size. Through integration of a product catalogue with a recommender system, an adaptive system has been created that guides users through the process of product browsing. An original technique has been developed to cluster similar positive examples together to identify areas of interest of a user. The performance of this technique has been evaluated and the results proved to be promising