Hyunchul Ahn

Bankruptcy prediction modeling with hybrid case-based reasoning and genetic algorithms approach

One of the most important research issues in finance is building effective corporate bankruptcy prediction models because they are essential for the risk management of financial institutions. Researchers have applied various data-driven approaches to enhance prediction performance including statistical and artificial intelligence techniques, and many of them have been proved to be useful. Case-based reasoning (CBR) is one of the most popular data-driven approaches because it is easy to apply, has no possibility of overfitting, and provides good explanation for the output. However, it has a critical limitation-its prediction performance is generally low. In this study, we propose a novel approach to enhance the prediction performance of CBR for the prediction of corporate bankruptcies. Our suggestion is the simultaneous optimization of feature weighting and the instance selection for CBR by using genetic algorithms (GAs). Our model can improve the prediction performance by referencing more relevant cases and eliminating noises. We apply our model to a real-world case. Experimental results show that the prediction accuracy of conventional CBR may be improved significantly by using our model. Our study suggests ways for financial institutions to build a bankruptcy prediction model which produces accurate results as well as good explanations for these results.

Global optimization of case-based reasoning for breast cytology diagnosis

Case-based reasoning (CBR) is one of the most popular prediction techniques in medical domains because it is easy to apply, has no possibility of overfitting, and provides a good explanation for the output. However, it has a critical limitation - its prediction performance is generally lower than other AI techniques like artificial neural networks (ANN). In order to obtain accurate results from CBR, effective retrieval and matching of useful prior cases for the problem is essential, but it is still a controversial issue to design a good matching and retrieval mechanism for CBR systems. In this study, we propose a novel approach to enhance the prediction performance of CBR. Our suggestion is the simultaneous optimization of feature weights, instance selection, and the number of neighbors that combine using genetic algorithms (GA). Our model improves the prediction performance in three ways - (1) measuring similarity between cases more accurately by considering relative importance of each feature, (2) eliminating useless or erroneous reference cases, and (3) combining several similar cases represent significant patterns. To validate the usefulness of our model, this study applied it to a real-world case for evaluating cytological features derived directly from a digital scan of breast fine needle aspirate (FNA) slides. Experimental results showed that the prediction accuracy of conventional CBR may be improved significantly by using our model. We also found that our proposed model outperformed all the other optimized models for CBR using GA.

A corporate credit rating model using multi-class support vector machines with an ordinal pairwise partitioning approach

Predicting corporate credit-rating using statistical and artificial intelligence (AI) techniques has received considerable research attention in the literature. In recent years, multi-class support vector machines (MSVMs) have become a very appealing machine-learning approach due to their good performance. Until now, researchers have proposed a variety of techniques for adapting support vector machines (SVMs) to multi-class classification, since SVMs were originally devised for binary classification. However, most of them have only focused on classifying samples into nominal categories; thus, the unique characteristic of credit-rating - ordinality - seldom has been considered in the proposed approaches. This study proposes a new type of MSVM classifier (named OMSVM) that is designed to extend the binary SVMs by applying an ordinal pairwise partitioning (OPP) strategy. Our model can efficiently and effectively handle multiple ordinal classes. To validate OMSVM, we applied it to a real-world case of bond rating. We compared the results of our model with those of conventional MSVM approaches and other AI techniques including MDA, MLOGIT, CBR, and ANNs. The results showed that our proposed model improves the performance of classification in comparison to other typical multi-class classification techniques and uses fewer computational resources.

Formulating strategies for stakeholder management: a case-based reasoning approach

The management of competing stakeholders has emerged as an important weapon for strategic management. Typically, reactive, defensive, accommodative, or proactive (RDAP) strategies have been employed for getting into the world of stakeholders. This paper proposes a methodology for formulating strategies for stakeholder management by the use of these RDAP strategies. Our methodology consists of four phases: stakeholder analysis, strategy retrieval, strategy revision, and strategy implementation. Strategies are derived on the basis of similar cases stored in case bases. A system called the stakeholder management strategy support system (SMSS) is implemented to put our methodology to work. In order to demonstrate the practical usefulness of this system, Korean Healthcare IT (Information Technology) industry is illustrated. This illustration implies that our methodology is useful, especially in view of dynamic nature of business and its stakeholders. Our methodology will be able to help any business leader create value while navigating a multi-stakeholder environment.

Global optimization of feature weights and the number of neighbors that combine in a case-based reasoning system

: Case-based reasoning (CBR) often shows significant promise for improving the effectiveness of complex and unstructured decision-making. Consequently, it has been applied to various problem-solving areas including manufacturing, finance and marketing. However, the design of appropriate case indexing and retrieval mechanisms to improve the performance of CBR is still a challenging issue. Most previous studies on improving the effectiveness of CBR have focused on the similarity function aspect or optimization of case features and their weights. However, according to some of the prior research, finding the optimal k parameter for the k-nearest neighbor is also crucial for improving the performance of the CBR system. Nonetheless, there have been few attempts to optimize the number of neighbors, especially using artificial intelligence techniques. In this study, we introduce a genetic algorithm to optimize the number of neighbors that combine, as well as the weight of each feature. The new model is applied to the real-world case of a major telecommunication company in Korea in order to build a prediction model for customer profitability level. Experimental results show that our genetic-algorithm-optimized CBR approach outperforms other artificial intelligence techniques for this multi-class classification problem.

Fuzzy cognitive map based on structural equation modeling for the design of controls in business-to-consumer e-commerce web-based systems

Security and integrity of business-to-consumer e-commerce web-based systems (ECWS) is becoming a concern among ECWS adopters. The controls for ECWS are classified into controls for system continuity, access controls, communication controls, and informal controls. The control design for ECWS is not well structured and demands understanding of the complex causal relationships among environmental factors (infrastructure, organizational requirements for security), controls, implementation, and performance. In order to aid the design of ECWS controls, the application of a fuzzy cognitive map, ECFCM (EC-control design using a fuzzy cognitive map), was developed. Structural equation modeling was used to identify relevant relationships among the components and indicate their direction and strength. A standardized causal coefficient from structural equation modeling was then used to create a fuzzy cognitive map, through which the state or movement of one control component was shown to have an influence on the state or movement of others. Thus ECFCM provides a practical insight to IS auditors by addressing the applicability of soft approaches in capturing and illustrating the use of FCM in the design of ECWS controls.

Hybrid genetic algorithms and case-based reasoning systems for customer classification

: Because of its convenience and strength in complex problem solving, case-based reasoning (CBR) has been widely used in various areas. One of these areas is customer classification, which classifies customers into either purchasing or non-purchasing groups. Nonetheless, compared to other machine learning techniques, CBR has been criticized because of its low prediction accuracy. Generally, in order to obtain successful results from CBR, effective retrieval of useful prior cases for the given problem is essential. However, designing a good matching and retrieval mechanism for CBR systems is still a controversial research issue. Most previous studies have tried to optimize the weights of the features or the selection process of appropriate instances. But these approaches have been performed independently until now. Simultaneous optimization of these components may lead to better performance than naive models. In particular, there have been few attempts to simultaneously optimize the weights of the features and the selection of instances for CBR. Here we suggest a simultaneous optimization model of these components using a genetic algorithm. To validate the usefulness of our approach, we apply it to two real-world cases for customer classification. Experimental results show that simultaneously optimized CBR may improve the classification accuracy and outperform various optimized models of CBR as well as other classification models including logistic regression, multiple discriminant analysis, artificial neural networks and support vector machines.

Extracting underlying meaningful features and canceling noise using independent component analysis for direct marketing

As the Internet spreads widely, it has become easier for companies to obtain and utilize valuable information on their customers. Nevertheless, many of them have difficulty in using the information effectively because of the huge amount of data from their customers that must to be analyzed. In addition, the data usually contains much noise due to anonymity of the Internet. Consequently, extracting the underlying meanings and canceling the noise of the collected customer data are crucial for the companies to implement their strategies for customer relationship management. As a novel solution, we propose the use of independent component analysis (ICA). ICA is a multivariate statistical tool which extracts independent components or sources of information, given only observed data that are assumed to be linear mixtures of some unknown sources. Moreover, ICA is able to reduce the dimension of the observed data, especially noisy variables. To validate the usefulness of ICA, we applied it to a real-world one-to-one marketing case. In this study, we used ICA as a preprocessing tool, and made a prediction for potential buyers using artificial neural networks (ANNs). We also applied PCA as a comparative model for ICA. The experimental results showed that ICA-preprocessed ANN outperformed all the comparative classifiers without preprocessing as well as PCA-preprocessed ANN.

Analysis of Trust in the E-Commerce Adoption

Understanding user acceptance of the Internet, especially the usage intention of virtual communities, is important in explaining the fact that virtual communities have been growing at an exponential rate in recent years. This paper studies the trust of virtual communities to better understand and manage the activities of E-commerce. A theoretical model proposed in this paper is to clarify the factors as they are related to the Technology Acceptance Model. In particular the relationship between trust and Intentions is hypothesized. Using the Technology Acceptance Model, this research showed that the importance of trust in virtual communities. According to the research, different ways of stimulating the members are necessary in order to facilitate participation in activities of virtual communities. The effect of trust in members on intention to use is stronger than that of trust in service providers. The intention to purchase is more sensitive to trust in service providers than trust in members.

Assessment of process improvement from organizational change

In order to enhance their performance, many organizations have initiated change projects. However, management is reluctant to initiate them due to their enterprise-wide impact and costs that are higher than those of traditional system development projects. Thus, there is a need to assess the value of the redesigned process of a successfully implemented organizational change projects. The purpose of this study was therefore to assess process improvement from organizational change in the areas of resource utilization and allocation and cycle time and cost reduction. The candidate process and design alternatives were identified from organizational requirements analysis. The variables and their relations were defined to perform task activity analysis, bottleneck analysis, cycle cost analysis, and resource utilization analysis. A case study of a manufacturing company indicated that the assessment method was a promising approach for identifying alternative processes that leads to better organizational performance.