Dynamic credit scoring using B & B with incremental-SVM-ensemble

Abstract

Purpose

Previous researches on credit scoring mainly focussed on static modeling on panel sample data set in a certain period of time, and did not pay enough attention on dynamic incremental modeling. The purpose of this paper is to address the integration of branch and bound algorithm with incremental support vector machine (SVM) ensemble to make dynamic modeling of credit scoring.

Design/methodology/approach

This new model hybridizes support vectors of old data with incremental financial data of corporate in the process of dynamic ensemble modeling based on bagged SVM. In the incremental stage, multiple base SVM models are dynamically adjusted according to bagged new updated information for credit scoring. These updated base models are further combined to generate a dynamic credit scoring. In the empirical experiment, the new method was compared with the traditional model of non-incremental SVM ensemble for credit scoring.

Findings

The results show that the new model is able to continuously and dynamically adjust credit scoring according to corporate incremental information, which helps produce better evaluation ability than the traditional model.

Originality/value

This research pioneered on dynamic modeling for credit scoring with incremental SVM ensemble. As time pasts, new incremental samples will be combined with support vectors of old samples to construct SVM ensemble credit scoring model. The incremental model will continuously adjust itself to keep good evaluation performance.

Citation

Sun, J., Li, H., Chang, P.-C. and Huang, Q.-H. (2015), "Dynamic credit scoring using B & B with incremental-SVM-ensemble", Kybernetes, Vol. 44 No. 4, pp. 518-535. https://doi.org/10.1108/K-02-2014-0036