**A Financial Approach to
Machine Learning with Applications to Credit Risk**

**Introduction
2 Credit Modeling Problems**

**Introduction
2 Credit Modeling Problems**

**Performance
Measures
Our Paradigm**

**Performance
Measures
Our Paradigm**

**Performance
Measures
Our Paradigm**

**Performance
Measures
Our Paradigm**

**Performance
Measures
Our Paradigm**

**Performance
Measures
Our Paradigm**

**Performance
Measures
Information Theoretic Interpretation**

**Performance
Measures
Information Theoretic Interpretation**

**Performance
Measures
Information Theoretic Interpretation**

**Performance
Measures
Information Theoretic Interpretation**

**Performance
Measures
Information Theoretic Interpretation**

**Performance
Measures
Important Class of Utility Functions**

**Performance
Measures
Important Class of Utility Functions**

**Performance
Measures
Important Class of Utility Functions**

**Performance
Measures
Important Class of Utility Functions**

**Performance
Measures
Important Class of Utility Functions**

**Performance
Measures:
An Important Class of Utilities**

**Performance
Measures
pdf(y),prob(Y=y|x),pdf(y|x)**

**Maximum Expected Utility
Models Introduction**

**Maximum Expected Utility
Models Introduction**

**Maximum Expected Utility
Models Formulation**

**Maximum Expected Utility
Models Formulation**

**Maximum Expected Utility
Models Formulation**

**Maximum Expected Utility
Models
Formulation**

**Maximum Expected Utility
Models
Formulation**

**Maximum Expected Utility
Models
Formulation**

**Maximum Expected Utility
Models
Formulation**

**Maximum Expected Utility
Models
Formulation**

**Maximum Expected Utility
Models
Dual Problem**

**Maximum Expected Utility
Models
Dual Problem**

**Maximum Expected Utility
Models
Summary of Approach**

**Maximum Expected Utility
Models
Losing the O’s**

**Maximum Expected Utility
Models
More General Context**

**Maximum Expected Utility
Models Applications and Performance**

**US Public Firm Model
Variables
in order of significance**

**US Public Firm Model
Variables
in order of significance**

**Performance
Measurement
Exploring the Model**

**Recovery Modeling
Approach
Conditional probabilities**

**Recovery Model
Results:
Probability density versus RGD and collateral**

**Recovery Model
Results:
Probability density versus RGD and collateral**

**Recovery Model
Results:
Point probabilities versus collateral**

**Model Results:
Probability density versus Spread and Maturity**

**Model Results:
Probability density versus Spread and Rating**

**Plot of 1-year PD
transition matrix
conditioned on survival**

**Model Results:
Default Time Density when all
explanatory variables are set to the medium value.**

**Model Results:
Probability density, given default within 3 yrs versus Net Income/Total
Assets**

**Model Results:
Probability density, given default within 3 yrs versus Total
Liabilities/Total Assets**

**Model Results:
Probability density, given default within 3 yrs versus Relative**

**Model Results:
Probability density, given default within 3 yrs versus Excess Return**

**Model Results:
Probability density, given default within 3 yrs versus Volatility**