A Review and Bibliography of Early Warning Models

This note is intended to share some observations regarding a non-exhaustive collection of the early warning literature from 1971 to 2011. Evolution of the interest in early warning models, methodological spectrum of studies and coverage of economic variables are briefly discussed in addition to providing a bibliography.Early warning systems, bibliometric analysis

A Hybrid Intelligent Early Warning System for Predicting Economic Crises: The Case of China

This paper combines artificial neural networks (ANN), fuzzy optimization and time-series econometric models in one unified framework to form a hybrid intelligent early warning system (EWS) for predicting economic crises. Using quarterly data on 12 macroeconomic and financial variables for the Chinese economy during 1999 and 2008, the paper finds that the hybrid model possesses strong predictive power and the likelihood of economic crises in China during 2009 and 2010 remains high.Computational intelligence; artificial neural networks; fuzzy optimization; early warning system; economic crises

Study of Discrete Choice Models and Adaptive Neuro-Fuzzy Inference System in the Prediction of Economic Crisis Periods in USA

In this study two approaches are applied for the prediction of the economic recession or expansion periods in USA. The first approach includes Logit and Probit models and the second is an Adaptive Neuro-Fuzzy Inference System (ANFIS) with Gaussian and Generalized Bell membership functions. The in-sample period 1950-2006 is examined and the forecasting performance of the two approaches is evaluated during the out-of sample period 2007-2010. The estimation results show that the ANFIS model outperforms the Logit and Probit model. This indicates that neuro-fuzzy model provides a better and more reliable signal on whether or not a financial crisis will take place.ANFIS, Discrete Choice Models, Error Back-propagation, Financial Crisis, Fuzzy Logic, US Economy

Business intelligence in risk management: Some recent progresses

Risk management has become a vital topic both in academia and practice during the past several decades. Most business intelligence tools have been used to enhance risk management, and the risk management tools have benefited from business intelligence approaches. This introductory article provides a review of the state-of-the-art research in business intelligence in risk management, and of the work that has been accepted for publication in this issue of Information Sciences

A Review of Bankruptcy Prediction Studies: 1930-Present

One of the most well-known bankruptcy prediction models was developed by Altman [1968] using multivariate discriminant analysis. Since Altman\u27s model, a multitude of bankruptcy prediction models have flooded the literature. The primary goal of this paper is to summarize and analyze existing research on bankruptcy prediction studies in order to facilitate more productive future research in this area. This paper traces the literature on bankruptcy prediction from the 1930\u27s, when studies focused on the use of simple ratio analysis to predict future bankruptcy, to present. The authors discuss how bankruptcy prediction studies have evolved, highlighting the different methods, number and variety of factors, and specific uses of models. Analysis of 165 bankruptcy prediction studies published from 1965 to present reveals trends in model development. For example, discriminant analysis was the primary method used to develop models in the 1960\u27s and 1970\u27s. Investigation of model type by decade shows that the primary method began to shift to logit analysis and neural networks in the 1980\u27s and 1990\u27s. The number of factors utilized in models is also analyzed by decade, showing that the average has varied over time but remains around 10 overall. Analysis of accuracy of the models suggests that multivariate discriminant analysis and neural networks are the most promising methods for bankruptcy prediction models. The findings also suggest that higher model accuracy is not guaranteed with a greater number of factors. Some models with two factors are just as capable of accurate prediction as models with 21 factors

A Comprehensive Survey on Enterprise Financial Risk Analysis: Problems, Methods, Spotlights and Applications

Enterprise financial risk analysis aims at predicting the enterprises' future financial risk.Due to the wide application, enterprise financial risk analysis has always been a core research issue in finance. Although there are already some valuable and impressive surveys on risk management, these surveys introduce approaches in a relatively isolated way and lack the recent advances in enterprise financial risk analysis. Due to the rapid expansion of the enterprise financial risk analysis, especially from the computer science and big data perspective, it is both necessary and challenging to comprehensively review the relevant studies. This survey attempts to connect and systematize the existing enterprise financial risk researches, as well as to summarize and interpret the mechanisms and the strategies of enterprise financial risk analysis in a comprehensive way, which may help readers have a better understanding of the current research status and ideas. This paper provides a systematic literature review of over 300 articles published on enterprise risk analysis modelling over a 50-year period, 1968 to 2022. We first introduce the formal definition of enterprise risk as well as the related concepts. Then, we categorized the representative works in terms of risk type and summarized the three aspects of risk analysis. Finally, we compared the analysis methods used to model the enterprise financial risk. Our goal is to clarify current cutting-edge research and its possible future directions to model enterprise risk, aiming to fully understand the mechanisms of enterprise risk communication and influence and its application on corporate governance, financial institution and government regulation

"Can Banks Learn to Be Rational?"

Can banks learn to be rational in their lending activities? The answer depends on the institutionally bounded constraints to learning. From an evolutionary perspective the functionality (for survival) of "learning to be rational" creates strong incentives for such learning without, however, guaranteeing that each member of the particular economic species actually achieves increased fitness. I investigate this issue for a particular economic species, namely, commrercial banks. The purpose of this paper is to illustrate the key issues related to learning in an economic model by proposing a new screening model for bank commercial loans that uses the neuro fuzzy technique. The technical modeling aspect is integrally connected in a rigorous way to the key conceptual and theoretical aspects of the capabilities for learning to be rational in a broad but precise sense. This paper also compares the relative predictability of loan default among three methods of prediction--- discriminant analysis, logit type regression, and neuro fuzzy--- based on the real data obtained from one of the banks in Taiwan.The neuro fuzzy model, in contrast with the other two, incorporates recursive learning in a real world, imprecise linguistic environment. The empirical results show that in addition to its better screening ability, the neuro fuzzy model is superior in explaining the relationship among the variables as well. With further modifications,this model could be used by bank regulatory agencies for loan examination and by bank loan officers for loan review. The main theoretical conclusion to draw from this demonstration is that non-linear learning in a vague semantic world is both possible and useful. Therefore the search for alternatives to the full neoclassical rationality and its equivalent under uncertainty---rational expectations--- is a plausible and desirable search, especially when the probability for convergence to a rational expectations equilibrium is low.

Machine learning applied to banking supervision a literature review

Guerra, P., & Castelli, M. (2021). Machine learning applied to banking supervision a literature review. Risks, 9(7), 1-24. [136]. https://doi.org/10.3390/risks9070136Machine learning (ML) has revolutionised data analysis over the past decade. Like in-numerous other industries heavily reliant on accurate information, banking supervision stands to benefit greatly from this technological advance. The objective of this review is to provide a compre-hensive walk-through of how the most common ML techniques have been applied to risk assessment in banking, focusing on a supervisory perspective. We searched Google Scholar, Springer Link, and ScienceDirect databases for articles including the search terms “machine learning” and (“bank” or “banking” or “supervision”). No language, date, or Journal filter was applied. Papers were then screened and selected according to their relevance. The final article base consisted of 41 papers and 2 book chapters, 53% of which were published in the top quartile journals in their field. Results are presented in a timeline according to the publication date and categorised by time slots. Credit risk assessment and stress testing are highlighted topics as well as other risk perspectives, with some references to ML application surveys. The most relevant ML techniques encompass k-nearest neigh-bours (KNN), support vector machines (SVM), tree-based models, ensembles, boosting techniques, and artificial neural networks (ANN). Recent trends include developing early warning systems (EWS) for bankruptcy and refining stress testing. One limitation of this study is the paucity of contributions using supervisory data, which justifies the need for additional investigation in this field. However, there is increasing evidence that ML techniques can enhance data analysis and decision making in the banking industry.publishersversionpublishe