woe.bin: Four-stage monotonic binning procedure with WoE threshold

In monobin: Monotonic Binning for Credit Rating Models

Four-stage monotonic binning procedure with WoE threshold

Description

woe.bin implements extension of the three-stage monotonic binning procedure (iso.bin) with weights of evidence (WoE) threshold. The first stage is isotonic regression used to achieve the monotonicity. The next two stages are possible corrections for minimum percentage of observations and target rate, while the last stage is iterative merging of bins until WoE threshold is exceeded.

Usage

woe.bin(
  x,
  y,
  sc = c(NA, NaN, Inf, -Inf),
  sc.method = "together",
  y.type = NA,
  min.pct.obs = 0.05,
  min.avg.rate = 0.01,
  woe.gap = 0.1,
  force.trend = NA
)

Arguments

x	Numeric vector to be binned.
y	Numeric target vector (binary or continuous).
sc	Numeric vector with special case elements. Default values are c(NA, NaN, Inf, -Inf). Recommendation is to keep the default values always and add new ones if needed. Otherwise, if these values exist in x and are not defined in the sc vector, function will report the error.
sc.method	Define how special cases will be treated, all together or in separate bins. Possible values are "together", "separately".
y.type	Type of y, possible options are "bina" (binary) and "cont" (continuous). If default value (NA) is passed, then algorithm will identify if y is 0/1 or continuous variable.
min.pct.obs	Minimum percentage of observations per bin. Default is 0.05 or minimum 30 observations.
min.avg.rate	Minimum y average rate. Default is 0.01 or minimum 1 bad case for y 0/1.
woe.gap	Minimum WoE gap between bins. Default is 0.1.
force.trend	If the expected trend should be forced. Possible values: "i" for increasing trend (y increases with increase of x), "d" for decreasing trend (y decreases with decrease of x). Default value is NA. If the default value is passed, then trend will be identified based on the sign of the Spearman correlation coefficient between x and y on complete cases.

Value

The command woe.bin generates a list of two objects. The first object, data frame summary.tbl presents a summary table of final binning, while x.trans is a vector of discretized values. In case of single unique value for x or y of complete cases (cases different than special cases), it will return data frame with info.

See Also

iso.bin for three-stage monotonic binning procedure.

Examples

suppressMessages(library(monobin))
data(gcd)
amount.bin <- woe.bin(x = gcd$amount, y = gcd$qual)
amount.bin[[1]]
diff(amount.bin[[1]]$woe)
tapply(gcd$amount, amount.bin[[2]], function(x) c(length(x), mean(x)))
woe.bin(x = gcd$maturity, y = gcd$qual)[[1]]
woe.bin(x = gcd$maturity, y = gcd$qual, woe.gap = 0.5)[[1]]

monobin documentation built on July 21, 2022, 5:11 p.m.