Domain-Constrained Stacking Framework for Credit Default Prediction

Ming-Liang Ding (), Yu-Liang Ma and Fu-Qiang You
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Ming-Liang Ding: College of Information Science and Engineering, Northeastern University, Shenyang 110819, China
Yu-Liang Ma: College of Information Science and Engineering, Northeastern University, Shenyang 110819, China
Fu-Qiang You: College of Information Science and Engineering, Northeastern University, Shenyang 110819, China

Mathematics, 2025, vol. 13, issue 21, 1-28

Abstract: Accurate and reliable credit risk classification is fundamental to the stability of financial systems and the efficient allocation of capital. However, with the rapid expansion of customer information in both volume and complexity, traditional rule-based or purely statistical approaches have become increasingly inadequate. Motivated by these challenges, this study introduces a domain-constrained stacking ensemble framework that systematically integrates business knowledge with advanced machine learning techniques. First, domain heuristics are embedded at multiple stages of the pipeline: threshold-based outlier removal improves data quality, target variable redefinition ensures consistency with industry practice, and feature discretization with monotonicity verification enhances interpretability. Then, each variable is transformed through Weight-of-Evidence (WOE) encoding and evaluated via Information Value (IV), which enables robust feature selection and effective dimensionality reduction. Next, on this transformed feature space, we train logistic regression (LR), random forest (RF), extreme gradient boosting (XGBoost), and a two-layer stacking ensemble. Finally, the ensemble aggregates cross-validated out-of-fold predictions from LR, RF and XGBoost as meta-features, which are fused by a meta-level logistic regression, thereby capturing both linear and nonlinear relationships while mitigating overfitting. Experimental results across two credit datasets demonstrate that the proposed framework achieves superior predictive performance compared with single models, highlighting its potential as a practical solution for credit risk assessment in real-world financial applications.

Keywords: credit risk prediction; domain-constrained modeling; stacking ensemble (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2025
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