The paper proposes an explainable Artificial Intelligence model that can be used in credit risk management and, in particular, in measuring the risks that arise when credit is borrowed employing peer to peer lending platforms. The model applies correlation networks to Shapley values so that Artificial Intelligence predictions are grouped according to the similarity in the underlying explanations. The empirical analysis of 15,000 small and medium companies asking for credit reveals that both risky and not risky borrowers can be grouped according to a set of similar financial characteristics, which can be employed to explain their credit score and, therefore, to predict their future behaviour.
The paper proposes an explainable AI model that can be used in fintech risk management and, in particular, in measuring the risks that arise when credit is borrowed employing peer to peer lending platforms. The model employs Shapley values, so that AI predictions are interpreted according to the underlying explanatory variables. The empirical analysis of 15,000 small and medium companies asking for peer to peer lending credit reveals that both risky and not risky borrowers can be grouped according to a set of similar financial characteristics, which can be employed to explain and understand their credit score and, therefore, to predict their future behavior.
The authors introduce a procedure to benchmark rule-based investment strategies and to explain the differences in path-dependent risk-adjusted performance measures using interpretable machine learning.n They apply the procedure to the Calmar ratio spread between hierarchical risk parity (HRP) and equal risk contribution (ERC) allocations of a multi-asset futures portfolio and find HRP to have superior risk-adjusted performance.n The authors regress the Calmar ratio spread against statistical features of bootstrapped futures return datasets using XGBoost and apply the SHAP framework by Lundberg and Lee (2017) to discuss the local and global feature importance.
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