• ISSN: 2010-023X (Print)
    • Abbreviated Title: Int. J. Trade, Economics and Financ.
    • Frequency: Quaterly
    • DOI: 10.18178/IJTEF
    • Editor-in-Chief: Prof.Tung-Zong (Donald) Chang
    • Managing Editor: Ms. Shira. W. Lu
    • Abstracting/ Indexing:  Crossref, Electronic Journals Library , EBSCO
    • E-mail: ijtef.editorial.office@gmail.com
HOME > Archive > 2020 > Volume 11 Number 6 (Dec. 2020) >
IJTEF 2020 Vol.11(6): 163-168 ISSN: 2010-023X
DOI: 10.18178/ijtef.2020.11.6.683

Credit Risk Rating Using State Machines and Machine Learning

Behnam Sabeti, Hossein Abedi Firouzjaee, Reza Fahmi, Saeid Safavi, Wenwu Wang, and Mark D. Plumbley

Abstract—Credit risk is the possibility of a loss resulting from a borrower’s failure to repay a loan or meet contractual obligations. With the growing number of customers and expansion of businesses, it’s not possible or at least feasible for banks to assess each customer individually in order to minimize this risk. Machine learning can leverage available user data to model a behavior and automatically estimate a credit score for each customer. In this research, we propose a novel approach based on state machines to model this problem into a classical supervised machine learning task. The proposed state machine is used to convert historical user data to a credit score which generates a data-set for training supervised models. We have explored several classification models in our experiments and illustrated the effectiveness of our modeling approach.

Index Terms—State machine, machine learning, classification, credit risk, financial regulation.

Behnam Sabeti, Hossein Abedi Firouzjaee, Reza Fahmi are with Miras Technologies International, Number 92, Movahed Danesh St., Tehran, Iran (email: behnam@miras-tech.com, hossein@miras-tech.com, reza@miras-tech.com). Saeid Safavi, Wenwu Wang, and Mark D. Plumbley are with CVSSP, University of Surrey, Guildford, Surrey GU2 7XH, UK (email: s.safavi@surrey.ac.uk, w.wang@surrey.ac.uk, m.plumbley@surrey.ac.uk).

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Cite: Behnam Sabeti, Hossein Abedi Firouzjaee, Reza Fahmi, Saeid Safavi, Wenwu Wang, and Mark D. Plumbley, "Credit Risk Rating Using State Machines and Machine Learning," International Journal of Trade, Economics and Finance vol.11, no.6, pp. 163-168, 2020.

Copyright © 2020 by the authors. This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).

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