Evolution Strategy-Based Adaptive Lq Penalty Support Vector Machines with Gauss Kernel for Credit Risk Analysis

Jianping Li, Gang Li, Dongxia Sun and Cheng Few Lee

Chapter 44 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 1675-1693 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Credit risk analysis has long attracted great attention from both academic researchers and practitioners. However, the recent global financial crisis has made the issue even more important because of the need for further enhancement of accuracy of classification of borrowers. In this study, an evolution strategy (ES)-based adaptive Lq SVM model with Gauss kernel (ES-ALqG-SVM) is proposed for credit risk analysis. Support vector machine (SVM) is a classification method that has been extensively studied in recent years. Many improved SVM models have been proposed, with non-adaptive and pre-determined penalties. However, different credit data sets have different structures that are suitable for different penalty forms in real life. Moreover, the traditional parameter search methods, such as the grid search method, are time consuming. The proposed ES-based adaptive Lq SVM model with Gauss kernel (ES-ALqG-SVM) aims to solve these problems. The non-adaptive penalty is extended to (0, 2] to fit different credit data structures, with the Gauss kernel, to improve classification accuracy.For verification purpose, two UCI credit datasets and a real-life credit dataset are used to test our model. The experiment results show that the proposed approach performs better than See5, DT, MCCQP, SVM light and other popular algorithms listed in this study, and the computing speed is greatly improved, compared with the grid search method.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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