Entropy multi-hyperplane credit scoring model

Wasakorn Laesanklang, Krung Sinapiromsaran, Boonyarit Intiyot

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

Entropy multi-hyperplane credit scoring model is a decision model that classifies applicants into payers or defaulters by optimizing the classification cost using multiple hyperplanes based on entropy order. In the first stage, the model uses a pair of hyperplanes composed of half of the attributes which are ordered increasingly by the entropy. The hyperplanes divide the applicants into 3 groups, namely payers, defaulters and the unclassified. From the unclassified group, the model uses another pair of hyperplanes which are composed of additional half of the rest of attributes based on the previous entropy order. The additional hyperplanes divide the unclassified group in the first stage into another 3 group namely payers in 2nd stage, defaulters in 2 nd stage and the unclassified in 2nd stage. In the final stage, the multi-dimensional hyperplanes created from all attributes are used to divide the loaners into two groups : payers and defaulters. In this paper, a mixed-integer programming model for entropy multi-hyperplane credit scoring model is developed to minimize the cost of misclassification errors. The experiment shows that our model has more accuracy than a two-stage least cost credit scoring model and uses less computational iterations than a multi-hyperplane credit scoring model. Moreover, the new model exhibits comparable result with classification tree, neural network, support vector machine, linear discriminant analysis and CART.

Original languageEnglish
Title of host publication2010 International Conference on Financial Theory and Engineering, ICFTE 2010
Pages91-94
Number of pages4
DOIs
Publication statusPublished - 2010
Externally publishedYes
Event2010 International Conference on Financial Theory and Engineering, ICFTE 2010 - Dubai, United Arab Emirates
Duration: 18 Jun 201020 Jun 2010

Publication series

Name2010 International Conference on Financial Theory and Engineering, ICFTE 2010

Conference

Conference2010 International Conference on Financial Theory and Engineering, ICFTE 2010
Country/TerritoryUnited Arab Emirates
CityDubai
Period18/06/1020/06/10

Keywords

  • A two-stage least cost credit scoring model
  • Credit scoring
  • Decision model
  • Entropy
  • Hyperplane
  • Mixed-integer programming

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