Credit scoring analysis using a fuzzy probabilistic rough set model

• Published in: Computational statistics & data analysis 2012-04, Vol.56 (4), p.981-994
• Main Authors: Capotorti, Andrea, Barbanera, Eva
• Format: Article
• Language: English
• Subjects: Assessments; Coherence; Coherent conditional probability assessments; Construction; Credit scoring; Fuzzy; Fuzzy set theory; Rough fuzzy multicriteria classification; Rough fuzzy multicriteria classification Coherent conditional probability assessments Credit scoring; Rough set models; Scoring; Set theory
• ISSN: 0167-9473; 1872-7352
• DOI: 10.1016/j.csda.2011.06.036

Credit scoring analysis is an important activity, especially nowadays after a huge number of defaults has been one of the main causes of the financial crisis. Among the many different tools used to model credit risk, the recent development of rough set models has proved effective. The original development of rough set theory has been widely generalized and combined with other approaches to uncertain reasoning, especially probability and fuzzy set theories. Since coherent conditional probability assessments cope well with the problem of unifying these different approaches, a merging of fuzzy rough set theory with this subjectivist approach is proposed. Specifically, expert partial probabilistic evaluations are encompassed inside a gradual decision rule structure, with coherence of the conclusion as a guideline. In line with Bayesian rough set models, credibility degrees of multiple premises are introduced through conditional probability assessments. Nonetheless, discernibility with this method remains too fine. Therefore, the basic partition is coarsened by equivalence classes based on the arity of positively, negatively and neutrally related criteria. A membership function, which grades the likelihood of default, is introduced by a peculiar choice of t-norms and t-conorms. To build and test the model, real data related to a sample of firms are used. ► We combine rough set theory with other uncertain reasoning approaches. ► This thanks to the generality of conditional coherent probability assessments. ► We soundly incorporate expert opinions in a procedure mainly based on data analysis. ► By a gradual coarsening of information we improve standard classification abilities. ► The study is led through a prototypical credit risk analysis example.