A Novel Fuzzy Unsupervised Quadratic Surface Support Vector Machine Based on DC Programming: An Application to Credit Risk Management

Tao Yu, Wei Huang and Xin Tang ()
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Tao Yu: School of Mathematics, Harbin Institute of Technology, Harbin 150001, China
Wei Huang: College of Business, Southern University of Science and Technology, Shenzhen 518055, China
Xin Tang: College of Business, Southern University of Science and Technology, Shenzhen 518055, China

Mathematics, 2023, vol. 11, issue 22, 1-14

Abstract: Unsupervised classification is used in credit risk assessment to reduce human resource costs and make informed decisions in the shortest possible time. Although several studies show that support vector machine-based methods have better performance in unlabeled datasets, several factors still negatively affect these models, such as unstable results due to random initialization, reduced effectiveness due to kernel dependencies, and noise points and outliers. This paper introduces an unsupervised classification method based on a fuzzy unsupervised quadratic surface support vector machine without a kernel to avoid selecting related kernel parameters for credit risk assessment. In addition, we propose an innovative fuzzy membership function for reducing noise points and outliers in line with the direction of sample density variation. Fuzzy Unsupervised QSSVM (FUS-QSSVM) outperforms well-known SVM-based methods based on numerical tests on public benchmark credit data. In some real-world applications, the proposed method has significant potential as well as being effective, efficient, and robust. The algorithm can therefore increase the number of potential customers of financial institutions as well as increase profitability.

Keywords: credit risk assessment; unsupervised classification; kernel-free quadratic surface SVM; fuzzy membership function (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
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