Quantitative Credit Risk Assessment
In high-stakes lending, a 1% error in False Negatives (predicting a “no-default” for a customer who eventually defaults) is orders of magnitude more expensive than a False Positive.
We implement Cost-Sensitive Evaluation using Precision-Recall (PR) AUC rather than standard ROC curves, specifically because of the high class-imbalance inherent in credit datasets. By integrating Expected Value Frameworks into the validation pipeline, we ensure the model’s threshold is optimized for maximum Capital Adequacy and reduced loan-loss provisions.