Journal of the Operational Research Society

, Volume 56, Issue 9, pp 1089–1098

Neural network survival analysis for personal loan data

  • B Baesens
  • T Van Gestel
  • M Stepanova
  • D Van den Poel
  • J Vanthienen
Special Issue Paper

DOI: 10.1057/palgrave.jors.2601990

Cite this article as:
Baesens, B., Van Gestel, T., Stepanova, M. et al. J Oper Res Soc (2005) 56: 1089. doi:10.1057/palgrave.jors.2601990

Abstract

Traditionally, credit scoring aimed at distinguishing good payers from bad payers at the time of the application. The timing when customers default is also interesting to investigate since it can provide the bank with the ability to do profit scoring. Analysing when customers default is typically tackled using survival analysis. In this paper, we discuss and contrast statistical and neural network approaches for survival analysis. Compared to the proportional hazards model, neural networks may offer an interesting alternative because of their universal approximation property and the fact that no baseline hazard assumption is needed. Several neural network survival analysis models are discussed and evaluated according to their way of dealing with censored observations, time-varying inputs, the monotonicity of the generated survival curves and their scalability. In the experimental part, we contrast the performance of a neural network survival analysis model with that of the proportional hazards model for predicting both loan default and early repayment using data from a UK financial institution.

Keywords

credit scoring survival analysis neural networks 

Copyright information

© Palgrave Macmillan Ltd 2005

Authors and Affiliations

  • B Baesens
    • 1
  • T Van Gestel
    • 2
  • M Stepanova
    • 3
  • D Van den Poel
    • 4
  • J Vanthienen
    • 5
  1. 1.University of SouthamptonHighfieldUK
  2. 2.Credit Methodology, Global Market Risk, Dexia GroupBrusselsBelgium
  3. 3.UBS AG, Financial Services GroupZurichSwitzerland
  4. 4.Ghent UniversityHoveniersbergBelgium
  5. 5.KU Leuven, DTEWLeuvenBelgium

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