• Journal of the Korean Operations Research and Management Science Society
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• v.30 no.1
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• pp.55-74
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• 2005

Bankruptcy prediction has drawn a lot of research interests in previous literature, and recent studies have shown that machine learning techniques achieved better performance than traditional statistical ones. This paper employs a relatively new machine learning technique, support vector machines (SVMs). to bankruptcy prediction problem in an attempt to suggest a new model with better explanatory power and stability. To serve this purpose, we use grid search technique using 5-fold cross-validation to find out the optimal values of the parameters of kernel function of SVM. In addition, to evaluate the prediction accuracy of SVM. we compare its performance with multiple discriminant analysis (MDA), logistic regression analysis (Logit), and three-layer fully connected back-propagation neural networks (BPNs). The experiment results show that SVM outperforms the other methods.

• Journal of Information Technology Services
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• v.15 no.1
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• pp.153-166
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• 2016

Ensemble classification is an approach that combines individually trained classifiers in order to improve prediction accuracy over individual classifiers. Ensemble techniques have been shown to be very effective in improving the generalization ability of the classifier. But base classifiers need to be as accurate and diverse as possible in order to enhance the generalization abilities of an ensemble model. Bagging is one of the most popular ensemble methods. In bagging, the different training data subsets are randomly drawn with replacement from the original training dataset. Base classifiers are trained on the different bootstrap samples. In this study we proposed a new bagging variant ensemble model, Randomized Bagging (RBagging) for improving the standard bagging ensemble model. The proposed model was applied to the bankruptcy prediction problem using a real data set and the results were compared with those of the other models. The experimental results showed that the proposed model outperformed the standard bagging model.

• The Journal of the Korea Contents Association
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• v.18 no.8
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• pp.525-535
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• 2018

If the frequency of a particular class is excessively higher than the frequency of other classes in the classification problem, data imbalance problems occur, which make machine learning distorted. Corporate bankruptcy prediction often suffers from data imbalance problems since the ratio of insolvent companies is generally very low, whereas the ratio of solvent companies is very high. To mitigate these problems, it is required to apply a proper sampling technique. Until now, oversampling techniques which adjust the class distribution of a data set by sampling minor class with replacement have popularly been used. However, they are a risk of overfitting. Under this background, this study proposes ROSE(Random Over Sampling Examples) technique which is proposed by Menardi and Torelli in 2014 for the effective corporate bankruptcy prediction. The ROSE technique creates new learning samples by synthesizing the samples for learning, so it leads to better prediction accuracy of the classifiers while avoiding the risk of overfitting. Specifically, our study proposes to combine the ROSE method with SVM(support vector machine), which is known as the best binary classifier. We applied the proposed method to a real-world bankruptcy prediction case of a Korean major bank, and compared its performance with other sampling techniques. Experimental results showed that ROSE contributed to the improvement of the prediction accuracy of SVM in bankruptcy prediction compared to other techniques, with statistical significance. These results shed a light on the fact that ROSE can be a good alternative for resolving data imbalance problems of the prediction problems in social science area other than bankruptcy prediction.

• Journal of Intelligence and Information Systems
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• v.20 no.4
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• pp.121-139
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• 2014

Predicting corporate failure has been an important topic in accounting and finance. The costs associated with bankruptcy are high, so the accuracy of bankruptcy prediction is greatly important for financial institutions. Lots of researchers have dealt with the topic associated with bankruptcy prediction in the past three decades. The current research attempts to use ensemble models for improving the performance of bankruptcy prediction. Ensemble classification is to combine individually trained classifiers in order to gain more accurate prediction than individual models. Ensemble techniques are shown to be very useful for improving the generalization ability of the classifier. Bagging is the most commonly used methods for constructing ensemble classifiers. In bagging, the different training data subsets are randomly drawn with replacement from the original training dataset. Base classifiers are trained on the different bootstrap samples. Instance selection is to select critical instances while deleting and removing irrelevant and harmful instances from the original set. Instance selection and bagging are quite well known in data mining. However, few studies have dealt with the integration of instance selection and bagging. This study proposes an improved bagging ensemble based on instance selection using genetic algorithms (GA) for improving the performance of SVM. GA is an efficient optimization procedure based on the theory of natural selection and evolution. GA uses the idea of survival of the fittest by progressively accepting better solutions to the problems. GA searches by maintaining a population of solutions from which better solutions are created rather than making incremental changes to a single solution to the problem. The initial solution population is generated randomly and evolves into the next generation by genetic operators such as selection, crossover and mutation. The solutions coded by strings are evaluated by the fitness function. The proposed model consists of two phases: GA based Instance Selection and Instance based Bagging. In the first phase, GA is used to select optimal instance subset that is used as input data of bagging model. In this study, the chromosome is encoded as a form of binary string for the instance subset. In this phase, the population size was set to 100 while maximum number of generations was set to 150. We set the crossover rate and mutation rate to 0.7 and 0.1 respectively. We used the prediction accuracy of model as the fitness function of GA. SVM model is trained on training data set using the selected instance subset. The prediction accuracy of SVM model over test data set is used as fitness value in order to avoid overfitting. In the second phase, we used the optimal instance subset selected in the first phase as input data of bagging model. We used SVM model as base classifier for bagging ensemble. The majority voting scheme was used as a combining method in this study. This study applies the proposed model to the bankruptcy prediction problem using a real data set from Korean companies. The research data used in this study contains 1832 externally non-audited firms which filed for bankruptcy (916 cases) and non-bankruptcy (916 cases). Financial ratios categorized as stability, profitability, growth, activity and cash flow were investigated through literature review and basic statistical methods and we selected 8 financial ratios as the final input variables. We separated the whole data into three subsets as training, test and validation data set. In this study, we compared the proposed model with several comparative models including the simple individual SVM model, the simple bagging model and the instance selection based SVM model. The McNemar tests were used to examine whether the proposed model significantly outperforms the other models. The experimental results show that the proposed model outperforms the other models.

• Environmental and Resource Economics Review
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• v.31 no.4
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• pp.733-753
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• 2022

Korean government established the Nationally Determined Contribution (NDC) in 2015. After revising in 2019, the government updated an enhanced target at the end of last year. When the NDC is addressed, the emission targets of each sector, such as power generation, industry, and buildings, are also set. This paper analyzes the emission target of each sector by applying a claims problem or bankruptcy problem developed from cooperative game theory. The five allocation rules from a claims problem are introduced and the properties of each rule are considered axiomatically. This study applies the five rules on allocating carbon emission by sector under the NDC target and compares the results with the announced government target. For the power generation sector, the government target is set lower than the emissions allocated by the five rules. On the other hand, the government target for the industry sector is higher than the results of the five rules. In other sectors, the government's targets are similar to the results of the rule that allocates emissions in proportion to each claim.

• Journal of Intelligence and Information Systems
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• v.22 no.1
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• pp.139-157
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• 2016

Bankruptcy involves considerable costs, so it can have significant effects on a country's economy. Thus, bankruptcy prediction is an important issue. Over the past several decades, many researchers have addressed topics associated with bankruptcy prediction. Early research on bankruptcy prediction employed conventional statistical methods such as univariate analysis, discriminant analysis, multiple regression, and logistic regression. Later on, many studies began utilizing artificial intelligence techniques such as inductive learning, neural networks, and case-based reasoning. Currently, ensemble models are being utilized to enhance the accuracy of bankruptcy prediction. Ensemble classification involves combining multiple classifiers to obtain more accurate predictions than those obtained using individual models. Ensemble learning techniques are known to be very useful for improving the generalization ability of the classifier. Base classifiers in the ensemble must be as accurate and diverse as possible in order to enhance the generalization ability of an ensemble model. Commonly used methods for constructing ensemble classifiers include bagging, boosting, and random subspace. The random subspace method selects a random feature subset for each classifier from the original feature space to diversify the base classifiers of an ensemble. Each ensemble member is trained by a randomly chosen feature subspace from the original feature set, and predictions from each ensemble member are combined by an aggregation method. The k-nearest neighbors (KNN) classifier is robust with respect to variations in the dataset but is very sensitive to changes in the feature space. For this reason, KNN is a good classifier for the random subspace method. The KNN random subspace ensemble model has been shown to be very effective for improving an individual KNN model. The k parameter of KNN base classifiers and selected feature subsets for base classifiers play an important role in determining the performance of the KNN ensemble model. However, few studies have focused on optimizing the k parameter and feature subsets of base classifiers in the ensemble. This study proposed a new ensemble method that improves upon the performance KNN ensemble model by optimizing both k parameters and feature subsets of base classifiers. A genetic algorithm was used to optimize the KNN ensemble model and improve the prediction accuracy of the ensemble model. The proposed model was applied to a bankruptcy prediction problem by using a real dataset from Korean companies. The research data included 1800 externally non-audited firms that filed for bankruptcy (900 cases) or non-bankruptcy (900 cases). Initially, the dataset consisted of 134 financial ratios. Prior to the experiments, 75 financial ratios were selected based on an independent sample t-test of each financial ratio as an input variable and bankruptcy or non-bankruptcy as an output variable. Of these, 24 financial ratios were selected by using a logistic regression backward feature selection method. The complete dataset was separated into two parts: training and validation. The training dataset was further divided into two portions: one for the training model and the other to avoid overfitting. The prediction accuracy against this dataset was used to determine the fitness value in order to avoid overfitting. The validation dataset was used to evaluate the effectiveness of the final model. A 10-fold cross-validation was implemented to compare the performances of the proposed model and other models. To evaluate the effectiveness of the proposed model, the classification accuracy of the proposed model was compared with that of other models. The Q-statistic values and average classification accuracies of base classifiers were investigated. The experimental results showed that the proposed model outperformed other models, such as the single model and random subspace ensemble model.

• Journal of Intelligence and Information Systems
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• v.15 no.3
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• pp.1-15
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• 2009

In a classification problem, data imbalance occurs when the number of instances in one class greatly outnumbers the number of instances in the other class. Such data sets often cause a default classifier to be built due to skewed boundary and thus the reduction in the classification accuracy of such a classifier. This paper proposes a Geometric Mean-based Boosting (GM-Boost) to resolve the problem of data imbalance. Since GM-Boost introduces the notion of geometric mean, it can perform learning process considering both majority and minority sides, and reinforce the learning on misclassified data. An empirical study with bankruptcy prediction on Korea companies shows that GM-Boost has the higher classification accuracy than previous methods including Under-sampling, Over-Sampling, and AdaBoost, used in imbalanced data and robust learning performance regardless of the degree of data imbalance.

• Journal of Intelligence and Information Systems
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• v.7 no.1
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• pp.135-147
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• 2001

This study proposes bankruptcy prediction model using fuzzy neural networks. Neural networks offer preeminent learning ability but they are often confronted with the inconsistent and unpredictable performance for noisy financial data. The existence of continuous data and large amounts of records may pose a challenging task to explicit concepts extraction from the raw data due to the huge data space determined by continuous input variables. The attempt to solve this problem is to transform each input variable in a way which may make it easier fur neural network to develop a predictive relationship. One of the methods selected for this is to map each continuous input variable to a series of overlapping fuzzy sets. Appropriately transforming each of the inputs into overlapping fuzzy membership sets provides an isomorphic mapping of the data to properly constructed membership values, and as such, no information is lost. In addition, it is easier far neural network to identify and model high-order interactions when the data is transformed in this way. Experimental results show that fuzzy neural network outperforms conventional neural network for the prediction of corporate bankruptcy.

• Journal of Korea Society of Industrial Information Systems
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• v.17 no.7
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• pp.139-148
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• 2012

An ensemble of classifiers is to employ a set of individually trained classifiers and combine their predictions. It has been found that in most cases the ensembles produce more accurate predictions than the base classifiers. Combining outputs from multiple classifiers, known as ensemble learning, is one of the standard and most important techniques for improving classification accuracy in machine learning. An ensemble of classifiers is efficient only if the individual classifiers make decisions as diverse as possible. Bagging is the most popular method of ensemble learning to generate a diverse set of classifiers. Diversity in bagging is obtained by using different training sets. The different training data subsets are randomly drawn with replacement from the entire training dataset. The random subspace method is an ensemble construction technique using different attribute subsets. In the random subspace, the training dataset is also modified as in bagging. However, this modification is performed in the feature space. Bagging and random subspace are quite well known and popular ensemble algorithms. However, few studies have dealt with the integration of bagging and random subspace using SVM Classifiers, though there is a great potential for useful applications in this area. The focus of this paper is to propose methods for improving SVM performance using hybrid ensemble strategy for bankruptcy prediction. This paper applies the proposed ensemble model to the bankruptcy prediction problem using a real data set from Korean companies.

• Journal of the Korean Data and Information Science Society
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• v.24 no.6
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• pp.1113-1125
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• 2013

Corporate bankruptcy prediction has been an important topic in the accounting and finance field for a long time. Several data mining techniques have been used for bankruptcy prediction. However, there are many limits for application to real classification problem with a single model. This study proposes ensemble SVM (support vector machine) model which assembles different SVM models with each different kernel functions. Our ensemble model is made and evaluated by v-fold cross-validation approach. The k top performing models are recruited into the ensemble. The classification is then carried out using the majority voting opinion of the ensemble. In this paper, we investigate the performance of ensemble SVM classifier in terms of accuracy, error rate, sensitivity, specificity, ROC curve, and AUC to compare with single SVM classifiers based on financial ratios dataset and simulation dataset. The results confirmed the advantages of our method: It is robust while providing good performance.