Imbalanced learning using actuarial modified loss function in tree-based models
Hu, Changyue
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https://hdl.handle.net/2142/110877
Description
Title
Imbalanced learning using actuarial modified loss function in tree-based models
Author(s)
Hu, Changyue
Issue Date
2021-04-30
Director of Research (if dissertation) or Advisor (if thesis)
Quan, Zhiyu
Chong, Alfred
Department of Study
Mathematics
Discipline
Actuarial Science
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
M.S.
Degree Level
Thesis
Keyword(s)
tree models, imbalanced learning, predictive modeling
Abstract
The point mass at zero and the heavy tail of insurance loss distribution poses the challenge to apply traditional methods directly to claim loss modeling. Via an illustrative simple dataset, this thesis first pinpoints the pitfall in the traditional tree-based algorithm’s splitting function. This thesis then modifies the function to remedy the imbalance issue presented in the insurance loss modeling. We propose two novel actuarial modified loss functions, namely, weighted sum of squared error and Canberra loss functions. This modification imposes a significant penalty on grouping nonzero observations with zero ones at the splitting procedure. We examine and compare the predictive performance of such actuarial modified tree-based models in relation to the traditional models in a synthetic dataset. Our studies show that, such modification results in improved prediction and completely different tree structures.
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