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Credit risk prediction using support vector machines

  • Jan-Henning Trustorff
  • Paul Markus Konrad
  • Jens Leker
Original Research

Abstract

The main purpose of this paper is to examine the relative performance between least-squares support vector machines and logistic regression models for default classification and default probability estimation. The financial ratios from a data set of more than 78,000 financial statements from 2000 to 2006 are used as default indicators. The main focus of this paper is on the influence of small training samples and high variance of the financial input data and the classification performance measured by the area under the receiver operating characteristic. The resolution and the reliability of the predicted default probabilities are evaluated by decompositions of the Brier score. It is shown that support vector machines significantly outperform logistic regression models, particularly under the condition of small training samples and high variance of the input data.

Keywords

Support vector machines Credit risk prediction Default classification Estimation of probabilities of default Training sample size Accounting data 

JEL Classification

C14 G33 

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  • Jan-Henning Trustorff
    • 1
  • Paul Markus Konrad
    • 1
  • Jens Leker
    • 1
  1. 1.Institute of Business AdministrationUniversity of MünsterMünsterGermany

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