This paper develops a method for handling two-class classification problems with highly unbalanced class sizes and misclassification costs. When the class sizes are highly unbalanced and the minority class represents a rare event, conventional classification methods tend to strongly favour the...

A pivotal characteristic of credit defaults that is ignored by most credit scoring models is the rarity of the event. The most widely used model to estimate the probability of default is the logistic regression model. Since the dependent variable represents a rare event, the logistic regression...