Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/25245 
Year of Publication: 
2008
Series/Report no.: 
SFB 649 Discussion Paper No. 2008,003
Publisher: 
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk, Berlin
Abstract: 
We propose a new nonlinear classification method based on a Bayesian sum-of-trees model, the Bayesian Additive Classification Tree (BACT), which extends the Bayesian Additive Regression Tree (BART) method into the classification context. Like BART, the BACT is a Bayesian nonparametric additive model specified by a prior and a likelihood in which the additive components are trees, and it is fitted by an iterative MCMC algorithm. Each of the trees learns a different part of the underlying function relating the dependent variable to the input variable, but the sum of the trees offers a flexible and robust model. Through several benchmark examples, we show that the BACT has excellent performance. This practical example is very important for banks to construct their risk profile and operate successfully. We use the German Creditreform database and classify the solvency status of German firms based on financial statement information. We show that the BACT outperforms the logit model, CART and the Support Vector Machine in identifying insolvent firms.
Subjects: 
Classification and Regression Tree
Financial Ratio
Misclassification Rate
Accuracy Ratio
JEL: 
C14
C11
C45
C01
Document Type: 
Working Paper

Files in This Item:
File
Size
532.68 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.