Credit scoring by incorporating dynamic networked information

DOI10.1016/J.EJOR.2020.03.078zbMATH Open1443.91314arXiv1905.11795OpenAlexW3015619437MaRDI QIDQ2189902FDOQ2189902

Authors: Yibei Li, Ximei Wang, Boualem Djehiche, Xiaoming Hu 

Publication date: 17 June 2020

Published in: European Journal of Operational Research (Search for Journal in Brave)

Abstract: In this paper, the credit scoring problem is studied by incorporating networked information, where the advantages of such incorporation are investigated theoretically in two scenarios. Firstly, a Bayesian optimal filter is proposed to provide risk prediction for lenders assuming that published credit scores are estimated merely from structured financial data. Such prediction can then be used as a monitoring indicator for the risk management in lenders' future decisions. Secondly, a recursive Bayes estimator is further proposed to improve the precision of credit scoring by incorporating the dynamic interaction topology of clients. It is shown that under the proposed evolution framework, the designed estimator has a higher precision than any efficient estimator, and the mean square errors are strictly smaller than the Cram'er-Rao lower bound for clients within a certain range of scores. Finally, simulation results for a special case illustrate the feasibility and effectiveness of the proposed algorithms.

Full work available at URL: https://arxiv.org/abs/1905.11795

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zbMATH Keywords

Bayesian inferencecredit scoringmulti-agent systemsdecision processesnetworked information

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Credit risk (91G40)

Cites Work

• Development and application of consumer credit scoring models using profit-based classification measures
• Comprehensible credit scoring models using rule extraction from support vector machines
• Benchmarking state-of-the-art classification algorithms for credit scoring: an update of research
• Spatial dependence in credit risk and its improvement in credit scoring
• A coupled Markov chain approach to credit risk modeling
• Credit scoring and its applications.

Cited In (7)

• Improved credit risk prediction based on an integrated graph representation learning approach with graph transformation
• Time will tell: Behavioural scoring and the dynamics of consumer credit assessment
• Dynamic credit quality evaluation with social network data
• A class of categorization methods for credit scoring models
• Credit scoring method using estimated forward financial statements based on purchase order information
• Predicting mortgage early delinquency with machine learning methods
• Markov chain lumpability and applications to credit risk modelling in compliance with the International Financial Reporting Standard 9 framework

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