Using Rule Ensembles to Predict Credit Risk #GHC15
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Intuit's Diane Chang talks about using Rule Ensembles to predict credit risk at the 2015 Grace Hopper Celebration of Women in Computing Conference.
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Using Rule Ensembles to Predict Credit Risk #GHC15
- 1. 2015 Using Rule Ensembles to Predict Credit Risk Diane Chang, Intuit October 16, 2015 #GHC15 2015
- 2. 2015 Trade-off: speed vs. rates
- 3. 2015 Can accounting data help?
- 5. 2015 Traditionally, one big model Annual Revenue ≤ $100K > $100K In TX Not in TX RetailNon-retail State Industry … …
- 7. 2015 Lots of little trees
- 8. 2015 Trees Rules Time in Business ≤ 3 yrs > 3 yrs > 8 > 10%≤ 10% # Invoices Sales Growth ≤ 8
- 9. 2015 Trees Rules Time in Business ≤ 3 yrs > 3 yrs # Invoices Sales Growth Rule 1: Time in Business ≤ 3 yrs Rule 2: Time in Business > 3 yrs Rule 3: Time in Business ≤ 3 yrs and # Invoices ≤ 8 Rule 4: Time in Business ≤ 3 yrs and # Invoices > 8 1 2 Rule 5: Time in Business > 3 yrs and Sales Growth ≤ 10% Rule 6: Time in Business > 3 yrs and Sales Growth > 10% ≤ 8 3 > 8 4 ≤ 10% 5 > 10% 6
- 10. 2015 A lot of rules! Rule 1 Rule 2 Rule 3 Rule 4 Rule 5 Rule 6 … Rule 1 Rule 2 Rule 3 Rule 4 … Rule n
- 11. 2015 Which rule is most predictive? w1* R1 + w2* R2 + w3* R3 + … + wn* Rn Weights, wi’s, computed via logistic regression
- 12. 2015 Scoring https://en.wikipedia.org/wiki/Logistic_regression loge p 1- p p = 1 1+e-score score = loge p 1- p = w0 + w1R1 + w2R2 +...+wnRn
- 13. 2015 Example R1: Time in Business ≤ 3 yrs R2: Time in Business > 3 yrs R3: Time in Business ≤ 3 yrs & Invoices ≤ 8 R4: Time in Business ≤ 3 yrs & Invoices > 8 R5: Time in Business > 3 yrs & Sales Growth ≤ 10% R6: Time in Business > 3 yrs & Sales Growth > 10% ✓ ✗ ✗ ✗ ✗ ✓ score = -2 + 0.1 − 0.6 = -2.5 Make a loan offer! • 2 years in business • 10 invoices per month • Sales growth: 12% score =-2+0.1R1 -0.25R2 +0.14R3 -0.6R4 +0.01R5 -0.07R6 p = 1 1+e2.5 » 0.08
- 14. 2015 Rule ensembles RULE Rule Ensemble Logistic Regression ✔ ✖ ✔ ✔ ✖ ✖ Missing data High predictive power Large number of variables
- 15. 2015 Try it yourself! Professor Friedman’s website: − http://statweb.stanford.edu/~jhf/R_RuleFit.html Open source “wrapper” to RuleFit − https://github.com/intuit/rego
- 16. 2015 Got Feedback? Rate and Review the session using the GHC Mobile App To download visit www.gracehopper.org