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An optimization problem has to be solved by adjusting the threshold and seeking the optimum in order to balance the trade-off between the decrease in revenue and a decrease in cost.

An optimization problem has to be solved by adjusting the threshold and seeking the optimum in order to balance the trade-off between the decrease in revenue and a decrease in cost.

Then by using the layout of the confusion matrix plotted in Figure 6, the four regions are divided as True Positive (TN), False Positive (FP), False Negative (FN) and True Negative (TN) if“Settled” is defined as positive and “Past Due” is defined as negative,. Aligned with all the confusion matrices plotted in Figure 5, TP could be the good loans hit, and FP may be the defaults missed. Our company is more interested in both of these areas. To normalize the values, two widely used mathematical terms are defined: True good Rate (TPR) and False Positive Rate (FPR). Their equations are shown below:

In this application, TPR could be the hit price of great loans, plus it represents the capacity of earning funds from loan interest; FPR is the rate that is missing of, plus it represents the likelihood of taking a loss.