Hybrid Genetic Algorithm and Learning Vector Quantization Modeling for Cost-Sensitive Bankruptcy Prediction

Abstract

Cost-sensitive classification algorithms that enable effective prediction, where the costs of misclassification can be very different, are crucial to creditors and auditors in credit risk analysis. Learning vector quantization (LVQ) is a powerful tool to solve bankruptcy prediction problem as a classification task. The genetic algorithm (GA) is applied widely in conjunction with artificial intelligent methods. The hybridization of genetic algorithm with existing classification algorithms is well illustrated in the field of bankruptcy prediction. In this paper, a hybrid GA and LVQ approach is proposed to minimize the expected misclassified cost under the asymmetric cost preference. Experiments on real-life French private company data show the proposed approach helps to improve the predictive performance in asymmetric cost setup.