A Comparison of Alternative Methodologies for Credit Risk Evaluation

Journal of Computational Optimization in Economics and Finance vol. 3, is. 3, pp. 169-185

Posted: 21 Jun 2013

See all articles by Dimitrios Niklis

Dimitrios Niklis

Independent

Michael Doumpos

Technical University of Crete (TUC) - Department of Production Engineering and Management

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics

Date Written: June 16, 2013

Abstract

Credit risk refers to the likelihood that a firm or individual borrower will fail to meet a debt obligation. Credit risk evaluation is a very challenging and important problem in the domain of financial risk management. There are different methods and approaches for constructing credit risk assessment rating systems. The aim of this paper is to perform an empirical comparison of different popular techniques using a data set of Greek companies from the commercial sector. For this purpose three different methodologies are used, namely logistic regression, support vector machines, and the UTADIS (UTilités Additives DIScriminantes) multicriteria method. The results show that even with a considerable imbalanced data set with a small number of defaults, all methods provide good results. The UTADIS multicriteria method outperforms the two other techniques. Ensemble models are also tested, but are found to provide only marginal improvements.

Keywords: Credit risk evaluation, Multicriteria techniques, Logistic regression, Support vector machines, Ensemble models

Suggested Citation

Niklis, Dimitrios and Doumpos, Michael and Gaganis, Chrysovalantis, A Comparison of Alternative Methodologies for Credit Risk Evaluation (June 16, 2013). Journal of Computational Optimization in Economics and Finance vol. 3, is. 3, pp. 169-185, Available at SSRN: https://ssrn.com/abstract=2280051

Michael Doumpos

Technical University of Crete (TUC) - Department of Production Engineering and Management ( email )

University Campus
Chania
Crete, 73100
Greece
+30 28210 37318 (Phone)
+30 28210 69410 (Fax)

Chrysovalantis Gaganis

University of Crete - Faculty of Social Sciences - Department of Economics ( email )

University Campus
Rethymno, Crete, 74100
Greece

HOME PAGE: http://economics.soc.uoc.gr/en/staff/4551/17

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