Towards a Comprehensible and Accurate Credit Management Model: Application of four Computational Intelligence Methodologies

The paper presents methods for classification of applicants into different categories of credit risk using four different computational intelligence techniques. The selected methodologies involved in the rule-based categorization task are (1) feedforward neural networks trained with second order methods (2) inductive machine learning, (3) hierarchical decision trees produced by grammar-guided genetic programming and (4) fuzzy rule based systems produced by grammar-guided genetic programming. The data used are both numerical and linguistic in nature and they represent a real-world problem, that of deciding whether a loan should be granted or not, in respect to financial details of customers applying for that loan, to a specific private EU bank. We examine the proposed classification models with a sample of enterprises that applied for a loan, each of which is described by financial decision variables (ratios), and classified to one of the four predetermined classes. Attention is given to the comprehensibility and the ease of use for the acquired decision models. Results show that the application of the proposed methods can make the classification task easier and - in some cases - may minimize significantly the amount of required credit data. We consider that these methodologies may also give the chance for the extraction of a comprehensible credit management model or even the incorporation of a related decision support system in bankin

Visa trial of international trade: evidence from support vector machines and neural networks

International trade depends on networking, interaction and in-person meetings which stimulate cross-border travels. The countries are seeking policies to encourage inbound mobility to support bilateral trade, tourism, and foreign direct investments. Some nations have been implementing liberal visa regimes as an important part of facilitating policies in view of security concerns. Turkey has been among the nations introducing liberal visa policies to support trade in the last decade and recorded significant increases in the volumes of exports. In this paper, we employed machine learning methodologies, Support vector machines (SVM) and Neural networks (NN), to investigate the facilitating impact of liberal visa policies on bilateral trade, using the export data from Turkey for the period of 2000–2014. The research disentangled the variables that have the strongest impact on trade utilizing SVM and NN models and exhibited that visa policies have significant impacts on the bilateral trade. More relaxed visa policies are recommended for the countries in the pursuit of increasing exports

An academic review: applications of data mining techniques in finance industry

With the development of Internet techniques, data volumes are doubling every two years, faster than predicted by Moore’s Law. Big Data Analytics becomes particularly important for enterprise business. Modern computational technologies will provide effective tools to help understand hugely accumulated data and leverage this information to get insights into the finance industry. In order to get actionable insights into the business, data has become most valuable asset of financial organisations, as there are no physical products in finance industry to manufacture. This is where data mining techniques come to their rescue by allowing access to the right information at the right time. These techniques are used by the finance industry in various areas such as fraud detection, intelligent forecasting, credit rating, loan management, customer profiling, money laundering, marketing and prediction of price movements to name a few. This work aims to survey the research on data mining techniques applied to the finance industry from 2010 to 2015.The review finds that Stock prediction and Credit rating have received most attention of researchers, compared to Loan prediction, Money Laundering and Time Series prediction. Due to the dynamics, uncertainty and variety of data, nonlinear mapping techniques have been deeply studied than linear techniques. Also it has been proved that hybrid methods are more accurate in prediction, closely followed by Neural Network technique. This survey could provide a clue of applications of data mining techniques for finance industry, and a summary of methodologies for researchers in this area. Especially, it could provide a good vision of Data Mining Techniques in computational finance for beginners who want to work in the field of computational finance

Electronic fraud detection in the U.S. Medicaid Healthcare Program: lessons learned from other industries

It is estimated that between $600 and$850 billion annually is lost to fraud, waste, and abuse in the US healthcare system,with $125 to$175 billion of this due to fraudulent activity (Kelley 2009). Medicaid, a state-run, federally-matchedgovernment program which accounts for roughly one-quarter of all healthcare expenses in the US, has been particularlysusceptible targets for fraud in recent years. With escalating overall healthcare costs, payers, especially government-runprograms, must seek savings throughout the system to maintain reasonable quality of care standards. As such, the need foreffective fraud detection and prevention is critical. Electronic fraud detection systems are widely used in the insurance,telecommunications, and financial sectors. What lessons can be learned from these efforts and applied to improve frauddetection in the Medicaid health care program? In this paper, we conduct a systematic literature study to analyze theapplicability of existing electronic fraud detection techniques in similar industries to the US Medicaid program

Artificial Intelligence & Machine Learning in Finance: A literature review

In the 2020s, Artificial Intelligence (AI) has been increasingly becoming a dominant technology, and thanks to new computer technologies, Machine Learning (ML) has also experienced remarkable growth in recent years; however, Artificial Intelligence (AI) needs notable data scientist and engineers’ innovation to evolve. Hence, in this paper, we aim to infer the intellectual development of AI and ML in finance research, adopting a scoping review combined with an embedded review to pursue and scrutinize the services of these concepts. For a technical literature review, we goose-step the five stages of the scoping review methodology along with Donthu et al.’s (2021) bibliometric review method. This article highlights the trends in AI and ML applications (from 1989 to 2022) in the financial field of both developed and emerging countries. The main purpose is to emphasize the minutiae of several types of research that elucidate the employment of AI and ML in finance. The findings of our study are summarized and developed into seven fields: (1) Portfolio Management and Robo-Advisory, (2) Risk Management and Financial Distress (3), Financial Fraud Detection and Anti-money laundering, (4) Sentiment Analysis and Investor Behaviour, (5) Algorithmic Stock Market Prediction and High-frequency Trading, (6) Data Protection and Cybersecurity, (7) Big Data Analytics, Blockchain, FinTech. Further, we demonstrate in each field, how research in AI and ML enhances the current financial sector, as well as their contribution in terms of possibilities and solutions for myriad financial institutions and organizations. We conclude with a global map review of 110 documents per the seven fields of AI and ML application.   Keywords: Artificial Intelligence, Machine Learning, Finance, Scoping review, Casablanca Exchange Market. JEL Classification: C80 Paper type: Theoretical ResearchIn the 2020s, Artificial Intelligence (AI) has been increasingly becoming a dominant technology, and thanks to new computer technologies, Machine Learning (ML) has also experienced remarkable growth in recent years; however, Artificial Intelligence (AI) needs notable data scientist and engineers’ innovation to evolve. Hence, in this paper, we aim to infer the intellectual development of AI and ML in finance research, adopting a scoping review combined with an embedded review to pursue and scrutinize the services of these concepts. For a technical literature review, we goose-step the five stages of the scoping review methodology along with Donthu et al.’s (2021) bibliometric review method. This article highlights the trends in AI and ML applications (from 1989 to 2022) in the financial field of both developed and emerging countries. The main purpose is to emphasize the minutiae of several types of research that elucidate the employment of AI and ML in finance. The findings of our study are summarized and developed into seven fields: (1) Portfolio Management and Robo-Advisory, (2) Risk Management and Financial Distress (3), Financial Fraud Detection and Anti-money laundering, (4) Sentiment Analysis and Investor Behaviour, (5) Algorithmic Stock Market Prediction and High-frequency Trading, (6) Data Protection and Cybersecurity, (7) Big Data Analytics, Blockchain, FinTech. Further, we demonstrate in each field, how research in AI and ML enhances the current financial sector, as well as their contribution in terms of possibilities and solutions for myriad financial institutions and organizations. We conclude with a global map review of 110 documents per the seven fields of AI and ML application.   Keywords: Artificial Intelligence, Machine Learning, Finance, Scoping review, Casablanca Exchange Market. JEL Classification: C80 Paper type: Theoretical Researc

Decision Support Systems for Risk Assessment in Credit Operations Against Collateral

With the global economic crisis, which reached its peak in the second half of 2008, and before a market shaken by economic instability, financial institutions have taken steps to protect the banks’ default risks, which had an impact directly in the form of analysis in credit institutions to individuals and to corporate entities. To mitigate the risk of banks in credit operations, most banks use a graded scale of customer risk, which determines the provision that banks must do according to the default risk levels in each credit transaction. The credit analysis involves the ability to make a credit decision inside a scenario of uncertainty and constant changes and incomplete transformations. This ability depends on the capacity to logically analyze situations, often complex and reach a clear conclusion, practical and practicable to implement. Credit Scoring models are used to predict the probability of a customer proposing to credit to become in default at any given time, based on his personal and financial information that may influence the ability of the client to pay the debt. This estimated probability, called the score, is an estimate of the risk of default of a customer in a given period. This increased concern has been in no small part caused by the weaknesses of existing risk management techniques that have been revealed by the recent financial crisis and the growing demand for consumer credit.The constant change affects several banking sections because it prevents the ability to investigate the data that is produced and stored in computers that are too often dependent on manual techniques. Among the many alternatives used in the world to balance this risk, the provision of guarantees stands out of guarantees in the formalization of credit agreements. In theory, the collateral does not ensure the credit return, as it is not computed as payment of the obligation within the project. There is also the fact that it will only be successful if triggered, which involves the legal area of the banking institution. The truth is, collateral is a mitigating element of credit risk. Collaterals are divided into two types, an individual guarantee (sponsor) and the asset guarantee (fiduciary). Both aim to increase security in credit operations, as an payment alternative to the holder of credit provided to the lender, if possible, unable to meet its obligations on time. For the creditor, it generates liquidity security from the receiving operation. The measurement of credit recoverability is a system that evaluates the efficiency of the collateral invested return mechanism. In an attempt to identify the sufficiency of collateral in credit operations, this thesis presents an assessment of smart classifiers that uses contextual information to assess whether collaterals provide for the recovery of credit granted in the decision-making process before the credit transaction become insolvent. The results observed when compared with other approaches in the literature and the comparative analysis of the most relevant artificial intelligence solutions, considering the classifiers that use guarantees as a parameter to calculate the risk contribute to the advance of the state of the art advance, increasing the commitment to the financial institutions.Com a crise econômica global, que atingiu seu auge no segundo semestre de 2008, e diante de um mercado abalado pela instabilidade econômica, as instituições financeiras tomaram medidas para proteger os riscos de inadimplência dos bancos, medidas que impactavam diretamente na forma de análise nas instituições de crédito para pessoas físicas e jurídicas. Para mitigar o risco dos bancos nas operações de crédito, a maioria destas instituições utiliza uma escala graduada de risco do cliente, que determina a provisão que os bancos devem fazer de acordo com os níveis de risco padrão em cada transação de crédito. A análise de crédito envolve a capacidade de tomar uma decisão de crédito dentro de um cenário de incerteza e mudanças constantes e transformações incompletas. Essa aptidão depende da capacidade de analisar situações lógicas, geralmente complexas e de chegar a uma conclusão clara, prática e praticável de implementar. Os modelos de Credit Score são usados para prever a probabilidade de um cliente propor crédito e tornar-se inadimplente a qualquer momento, com base em suas informações pessoais e financeiras que podem influenciar a capacidade do cliente de pagar a dívida. Essa probabilidade estimada, denominada pontuação, é uma estimativa do risco de inadimplência de um cliente em um determinado período. A mudança constante afeta várias seções bancárias, pois impede a capacidade de investigar os dados que são produzidos e armazenados em computadores que frequentemente dependem de técnicas manuais. Entre as inúmeras alternativas utilizadas no mundo para equilibrar esse risco, destacase o aporte de garantias na formalização dos contratos de crédito. Em tese, a garantia não “garante” o retorno do crédito, já que não é computada como pagamento da obrigação dentro do projeto. Tem-se ainda, o fato de que esta só terá algum êxito se acionada, o que envolve a área jurídica da instituição bancária. A verdade é que, a garantia é um elemento mitigador do risco de crédito. As garantias são divididas em dois tipos, uma garantia individual (patrocinadora) e a garantia do ativo (fiduciário). Ambos visam aumentar a segurança nas operações de crédito, como uma alternativa de pagamento ao titular do crédito fornecido ao credor, se possível, não puder cumprir suas obrigações no prazo. Para o credor, gera segurança de liquidez a partir da operação de recebimento. A mensuração da recuperabilidade do crédito é uma sistemática que avalia a eficiência do mecanismo de retorno do capital investido em garantias. Para tentar identificar a suficiência das garantias nas operações de crédito, esta tese apresenta uma avaliação dos classificadores inteligentes que utiliza informações contextuais para avaliar se as garantias permitem prever a recuperação de crédito concedido no processo de tomada de decisão antes que a operação de crédito entre em default. Os resultados observados quando comparados com outras abordagens existentes na literatura e a análise comparativa das soluções de inteligência artificial mais relevantes, mostram que os classificadores que usam garantias como parâmetro para calcular o risco contribuem para o avanço do estado da arte, aumentando o comprometimento com as instituições financeiras