Bayesian logistic regression models for credit scoring

Webster, Gregg Robert (2011) Bayesian logistic regression models for credit scoring. Masters thesis, Rhodes University.




The Bayesian approach to logistic regression modelling for credit scoring is useful when there are data quantity issues. Data quantity issues might occur when a bank is opening in a new location or there is change in the scoring procedure. Making use of prior information (available from the coefficients estimated on other data sets, or expert knowledge about the coefficients) a Bayesian approach is proposed to improve the credit scoring models. To achieve this, a data set is split into two sets, “old” data and “new” data. Priors are obtained from a model fitted on the “old” data. This model is assumed to be a scoring model used by a financial institution in the current location. The financial institution is then assumed to expand into a new economic location where there is limited data. The priors from the model on the “old” data are then combined in a Bayesian model with the “new” data to obtain a model which represents all the available information. The predictive performance of this Bayesian model is compared to a model which does not make use of any prior information. It is found that the use of relevant prior information improves the predictive performance when the size of the “new” data is small. As the size of the “new” data increases, the importance of including prior information decreases.

Item Type:Thesis (Masters)
Uncontrolled Keywords:Bayesian statistical decision theory, Credit scoring systems, Logistic regression analysis, Monte Carlo method, Markov processes, Financial institutions
Subjects:H Social Sciences > HA Statistics
Divisions:Faculty > Faculty of Commerce > Statistics
Faculty > Faculty of Science > Statistics
Supervisors:Radloff, S.E.
ID Code:2877
Deposited By: Ms Chantel Clack
Deposited On:29 May 2012 14:11
Last Modified:29 May 2012 14:11
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