scholarly journals A Comparative Assessment of Credit Risk Model Based on Machine Learning ——a case study of bank loan data

2020 ◽  
Vol 174 ◽  
pp. 141-149
Author(s):  
Yuelin Wang ◽  
Yihan Zhang ◽  
Yan Lu ◽  
Xinran Yu
Keyword(s):  
Machine Learning ◽  
Credit Risk ◽  
Risk Model ◽  
Comparative Assessment ◽  
Bank Loan ◽  
Model Based ◽  
Credit Risk Model

scholarly journals Using Small Business Banking Data for Explainable Credit Risk Scoring

2020 ◽  
Vol 34 (08) ◽  
pp. 13396-13401
Author(s):  
Wei Wang ◽  
Christopher Lesner ◽  
Alexander Ran ◽  
Marko Rukonic ◽  
Jason Xue ◽  
...  
Keyword(s):  
Machine Learning ◽  
Small Business ◽  
Credit Risk ◽  
Risk Model ◽  
Learning Models ◽  
Machine Learning Model ◽  
Risk Scoring ◽  
Financial Transactions ◽  
Credit Risk Model ◽  
Machine Learning Models

Machine learning applied to financial transaction records can predict how likely a small business is to repay a loan. For this purpose we compared a traditional scorecard credit risk model against various machine learning models and found that XGBoost with monotonic constraints outperformed scorecard model by 7% in K-S statistic. To deploy such a machine learning model in production for loan application risk scoring it must comply with lending industry regulations that require lenders to provide understandable and specific reasons for credit decisions. Thus we also developed a loan decision explanation technique based on the ideas of WoE and SHAP. Our research was carried out using a historical dataset of tens of thousands of loans and millions of associated financial transactions. The credit risk scoring model based on XGBoost with monotonic constraints and SHAP explanations described in this paper have been deployed by QuickBooks Capital to assess incoming loan applications since July 2019.

scholarly journals THE CONGLOMERATE DISCOUNT: A NEW EXPLANATION BASED ON CREDIT RISK

2006 ◽  
Vol 09 (08) ◽  
pp. 1201-1214 ◽  
Author(s):  
MANUEL AMMANN ◽  
MICHAEL VERHOFEN
Keyword(s):  
Credit Risk ◽  
Risk Model ◽  
Limited Liability ◽  
Ceteris Paribus ◽  
Diversification Discount ◽  
Model Based ◽  
Business Units ◽  
Credit Risk Model

We present a simple new explanation for the diversification discount in the valuation of firms. We demonstrate that, ceteris paribus, limited liability of equity holders is sufficient to explain a diversification discount. To derive this result, we use a credit risk model based on the value of the firm's assets. We show that a conglomerate can be regarded as an option on a portfolio of assets. By splitting up the conglomerate, the investor receives a portfolio of options on assets. The conglomerate discount arises because the value of a portfolio of options is always equal to or higher than the value of an option on a portfolio. The magnitude of the conglomerate discount depends on the number of business units and their correlation, as well as their volatility, among other factors.

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