Credit Rating Forecasting Using Machine Learning Techniques

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Author(s): Mark Wallis (Bond University, Australia), Kuldeep Kumar (Bond University, Australia)and Adrian Gepp (Bond University, Australia)
Copyright: 2022
Pages: 19
Source title: Research Anthology on Machine Learning Techniques, Methods, and Applications
Source Author(s)/Editor(s): Information Resources Management Association (USA)
DOI: 10.4018/978-1-6684-6291-1.ch039

Keywords: Artificial Intelligence / Engineering Science Reference / Knowledge Management and Library Science / Machine Learning

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Abstract

Credit ratings are an important metric for business managers and a contributor to economic growth. Forecasting such ratings might be a suitable application of big data analytics. As machine learning is one of the foundations of intelligent big data analytics, this chapter presents a comparative analysis of traditional statistical models and popular machine learning models for the prediction of Moody's long-term corporate debt ratings. Machine learning techniques such as artificial neural networks, support vector machines, and random forests generally outperformed their traditional counterparts in terms of both overall accuracy and the Kappa statistic. The parametric models may be hindered by missing variables and restrictive assumptions about the underlying distributions in the data. This chapter reveals the relative effectiveness of non-parametric big data analytics to model a complex process that frequently arises in business, specifically determining credit ratings.

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Credit Rating Forecasting Using Machine Learning Techniques

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