Journal of Risk Model Validation

Risk.net

A modified hybrid feature-selection method based on a filter and wrapper approach for credit risk forecasting

Guotai Chi and Mohamed Abdelaziz Mandour

  • We propose modified hybrid feature selection based on χ2 - recursive feature elimination (SVM) which outperformed other methods for credit risk forecasting.
  • Both imbalanced and balanced metrics for evaluating the performance of classifiers are used in this study, which makes the result more generally applicable.
  • The main three contributions of this paper are high classifier performance, low computational cost and selecting the most related features.

Sifting through features to find the most related ones is known as feature selection. This paper introduces a feature-selection technique based on a modified approach in order to improve classification performance using fewer features: the chi-squared with recursive feature elimination (χ2-RFE) method. It combines χ2 as a filter approach with recursive feature elimination as a wrapper approach. The algorithm developed for the χ2-RFE method is superior to six other algorithms in measures of average performance, with acceptable computing time. This is demonstrated by application to a data set of Chinese listed companies with a sample size of 47 172 and 535 characteristics, and the efficacy of the χ2-RFE algorithm is further confirmed by an experiment on a German data set with a sample size of 1000 and 24 characteristics. Since it can be challenging to achieve high accuracy and good performance in measures related to imbalanced data with only a few features, we extensively analyze the potential of our modified feature-selection framework, χ2-RFE, to provide a solution.

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