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Credit rating prediction using ant colony optimization

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Abstract
The introduction of the Basel II Capital Accord has encouraged financial institutions to build internal rating systems assessing the credit risk of their various credit portfolios. One of the key outputs of an internal rating system is the probability of default (PD), which reflects the likelihood that a counterparty will default on his/her financial obligation. Since the PD modelling problem basically boils down to a discrimination problem (defaulter or not), one may rely on the myriad of classification techniques that have been suggested in the literature. However, since the credit risk models will be subject to supervisory review and evaluation, they must be easy to understand and transparent. Hence, techniques such as neural networks or support vector machines are less suitable due to their black box nature. Building upon previous research, we will use AntMiner+ to build internal rating systems for credit risk. AntMiner+ allows to infer a propositional rule set from a given data set, hereby using the principles from Ant Colony Optimization. Experiments will be conducted using various types of credit data sets (retail, small-and medium-sized enterprises and banks). It will be shown that the extracted rule sets are both powerful in terms of discriminatory power and comprehensibility. Furthermore, a framework will be presented describing how AntMiner+ fits into a global Basel II credit risk management system.
Keywords
SCORING MODELS, CLASSIFICATION, SYSTEM, ALGORITHMS, Ant Colony Optimization, classification, bankruptcy prediction, credit scoring, Basel II

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Chicago
Martens, David, Tony Van Gestel, Manu De Backer, Raf Haesen, Jan Vanthienen, and Bart Baesens. 2010. “Credit Rating Prediction Using Ant Colony Optimization.” Journal of the Operational Research Society 61 (4): 561–573.
APA
Martens, David, Van Gestel, T., De Backer, M., Haesen, R., Vanthienen, J., & Baesens, B. (2010). Credit rating prediction using ant colony optimization. JOURNAL OF THE OPERATIONAL RESEARCH SOCIETY, 61(4), 561–573.
Vancouver
1.
Martens D, Van Gestel T, De Backer M, Haesen R, Vanthienen J, Baesens B. Credit rating prediction using ant colony optimization. JOURNAL OF THE OPERATIONAL RESEARCH SOCIETY. 2010;61(4):561–73.
MLA
Martens, David, Tony Van Gestel, Manu De Backer, et al. “Credit Rating Prediction Using Ant Colony Optimization.” JOURNAL OF THE OPERATIONAL RESEARCH SOCIETY 61.4 (2010): 561–573. Print.
@article{747888,
  abstract     = {The introduction of the Basel II Capital Accord has encouraged financial institutions to build internal rating systems assessing the credit risk of their various credit portfolios. One of the key outputs of an internal rating system is the probability of default (PD), which reflects the likelihood that a counterparty will default on his/her financial obligation. Since the PD modelling problem basically boils down to a discrimination problem (defaulter or not), one may rely on the myriad of classification techniques that have been suggested in the literature. However, since the credit risk models will be subject to supervisory review and evaluation, they must be easy to understand and transparent. Hence, techniques such as neural networks or support vector machines are less suitable due to their black box nature. Building upon previous research, we will use AntMiner+ to build internal rating systems for credit risk. AntMiner+ allows to infer a propositional rule set from a given data set, hereby using the principles from Ant Colony Optimization. Experiments will be conducted using various types of credit data sets (retail, small-and medium-sized enterprises and banks). It will be shown that the extracted rule sets are both powerful in terms of discriminatory power and comprehensibility. Furthermore, a framework will be presented describing how AntMiner+ fits into a global Basel II credit risk management system.},
  author       = {Martens, David and Van Gestel, Tony and De Backer, Manu and Haesen, Raf and Vanthienen, Jan and Baesens, Bart},
  issn         = {0160-5682},
  journal      = {JOURNAL OF THE OPERATIONAL RESEARCH SOCIETY},
  keywords     = {SCORING MODELS,CLASSIFICATION,SYSTEM,ALGORITHMS,Ant Colony Optimization,classification,bankruptcy prediction,credit scoring,Basel II},
  language     = {eng},
  number       = {4},
  pages        = {561--573},
  title        = {Credit rating prediction using ant colony optimization},
  url          = {http://dx.doi.org/10.1057/jors.2008.164},
  volume       = {61},
  year         = {2010},
}

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