CFA Lecture

RatingBot: A Text Mining Based Rating Approach

Partner Event with Global Association of Risk Professionals (GARP)

Credit risk is at the core of banking business and its adequate measurement is crucial for financial institutions. Due to lack of historical default data and heterogeneity of customers, qualitative expert-based information is an important factor in measuring the creditworthiness of large companies. However, such information is often extracted manually, causing inefficiencies and possible subjectivity. To solve this problem, Diana Hristova et. al. developed the RatingBot: a text mining based rating approach, which efficiently and objectively models relevant qualitative information based on annual reports. It combines both the literature on text mining in finance and machine learning in credit rating to derive the credit rating of a company. The approach was evaluated on two datasets: a publicly available one that facilitates replicability, and a dataset provided by a major European bank representing real-world scenario. Diana Hristova will share results on her research that show that RatingBot deliver additional predictive power and should be considered in future research on credit rating models.