Heteroscedastic discriminant analysis  combined with feature selection for credit scoring

Katarzyna  Stąpor; Tomasz  Smolarczyk; Piotr  Fabian

doi:https://doi.org/10.59170/stattrans-2016-014

Heteroscedastic discriminant analysis combined with feature selection for credit scoring

Katarzyna Stąpor Institute of Computer Science, Silesian University of Technology, Gliwice, Poland. , Tomasz Smolarczyk Institute of Computer Science, Silesian University of Technology, Gliwice, Poland. , Piotr Fabian Institute of Computer Science, Silesian University of Technology, Gliwice, Poland. Statistics in Transition new series, vol. 17, 2016, 2, pages: 265-280 Published online: 1 June 2016 https://doi.org/10.59170/stattrans-2016-014

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ABSTRACT

Credit granting is a fundamental question and one of the most complex tasks that every credit institution is faced with. Typically, credit scoring databases are often large and characterized by redundant and irrelevant features. An effective classification model will objectively help managers instead of intuitive experience. This study proposes an approach for building a credit scoring model based on the combination of heteroscedastic extension (Loog, Duin, 2002) of classical Fisher Linear Discriminant Analysis (Fisher, 1936, Krzyśko, 1990) and a feature selection algorithm that retains sufficient information for classification purpose. We have tested five feature subset selection algorithms: two filters and three wrappers. To evaluate the accuracy of the proposed credit scoring model and to compare it with the existing approaches we have used the German credit data set from the study (Chen, Li, 2010). The results of our study suggest that the proposed hybrid approach is an effective and promising method for building credit scoring models.

KEYWORDS

heteroscedastic discriminant analysis, feature subset selection, variable importance, credit scoring model.

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