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You work for a bank as a business data analyst in the credit card risk-modeling department. Your ban Show more You work for a bank as a business data analyst in the credit card risk-modeling department. Your bank recently conducted a bold experiment: over a short time interval three years ago it quietly issued 600 credit cards to everyone who applied regardless of their credit risk. After three years 150 or 25% of card recipients defaulted they failed to pay back at least some of the money they owed. However the bank collected very valuable proprietary data that it can now use to optimize its future card-issuing process. The bank initially collected six pieces of data about each person. Age Years at current employer Years at current address Income over the past year Current credit card debt and Current automobile debt You are first asked to propose a binary classification model for default that uses only data from one or more of the above six inputs and outputs a single score. The relative rank-ordering of scores will determine the models effectiveness. For convenience you are asked to use a scale for your score that has a maximum < 3.5 and a minimum > -3.5. Initially you are not told what the banks best estimate for cost per False Negative (accepted applicant who becomes a defaulting customer) and False Positive (rejected customer who would not have defaulted). Therefore the best you can do is to design a model that maximizes the Area Under the ROC Curve or AUC. You are told that if your model is effective (high enough AUC not defined) and robust (not defined but in general means relatively little change in AUC across multiple sets of available data) that it may be adopted by the bank as a predictive model for default to determine which future applicants will be issued credit cards. First Binary Classification Model: You are first given a training set of 200 out of the 600 people in the experiment. Design your model on this set. Standardize your data first. You may combine the six inputs by adding them to or subtracting them from each other taking simple ratios etc The only restriction is that your final score needs to be scaled so that the maximum is less than 3.5 and the minimum is greater than -3.5 so you can use the Excel AUC Calculator provided. Question 1: What is your model? Give it as a function of the two or more of the six inputs that outputs a single numerical score between -3.5 and 3.5 for each applicant Question 2: What is your models AUC on the Training Set? Show less
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