Whitepaper: Predicting Credit Defaults using Machine Learning
For Counterparty Credit Scoring & Risk Management
Imagine a Counterparty with a history of default, beginning to slip on its payments again; or a relatively newer Counterparty with steadily increasing exposures beyond company’s comfort levels. You’d want to see red flags on these and other such cases much before it actually hits the reality, right? But today’s systems and processes are just about geared towards generating either pure Bayesian framework based or pure score-card based models that fail to take into account several external factors that often play a large role in predicting these red flags.
Risk Edge has come up with a new whitepaper on using Machine Learning for predicting Credit Defaults, which can also be used for Credit Scoring. Although based on individual data (instead of corporate data), the model is quite similar to the one that can be used to predict Counterparty defaults.
What can you learn from this paper?
The paper shows multiple models that can be used for predicting defaults, along with their results on how they fared in terms of accuracy. The paper not only gives a brief about the models, so as to not give them a “black-box” feel, but also shows how they can be tweaked in multiple ways using advanced Machine learning techniques to improve their accuracy !
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