Paper offers method for evaluating machine learning models
Bank of Spain paper looks at cost and benefits of ML models for predicting credit defaults
Regulators must make “significant efforts” to evaluate machine learning models used to predict credit defaults, according to a new paper published by the Bank of Spain.
Andrés Alonso and José Manuel Carbó find machine learning models “outperform” traditional models when predicting credit default, but only up to a certain point.
“More advanced ML models may offer gains in classification power of up to 20%,” the authors say. “As the algorithmic complexity increases, the gains in predictive
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