Financial Analytics

Financial Analytics

Example credit card debt: Avoid defaulters

Exercise:
Payment defaults due to credit card debts – currently these are expected to reach a ten-digit sum within US retail-lending alone. Financial service providers, hotels, gastronomy and retail – they all face the same question: Will a potential customer or debtor pay or not? And if not, what damage is to be expected?

 

Procedure:
Instead of modeling a logistic regression with all its weaknesses, we rely on state-of-the-art methods such as ensemble models. Case in point: The random forest method leads to significantly more accurate forecasts. Amongst other variations, it is a proven learning method for classification and regression analysis.

 

Goal:
Quick and comprehensible decisions with a simple algorithm, easy to understand and flexible in application: Which methods lead to the best result for which data structure? Is a better forecast quality accompanied by higher computational complexity? Which factors are decisive for automated lending practices and which remain hidden from us?

 

Conclusion:
Random Forest and its variations are particularly suitable for processing large amounts of data with many classes, characteristics and training data, whilst providing remarkable result and forecast precision.

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Applied Frameworks