Table 2.
Algorithms | Category | Assumptions | Benefits | Limitations | Ref |
---|---|---|---|---|---|
Linear regression | Regression | Linearity, fixed features, independence, normality; Error variance is assumed to be constant. |
Simple application; Guaranteed to find the optimal solution. |
Only works for linear relationship data. | [69,70] |
Random forest | Classification | Assume model errors are uncorrelated and uniform. | Provides fast learning and highly accurate predictions; Can intake large set of data without variable deletion; Can work with unbalanced data sets. |
Time-consuming to form predictions. | [71,72] |
Decision tree | Classification, Regression | The classes must be mutually exclusive. | Easy to use and to understand, efficient algorithm (especially for predictions). | Depending on the selection order, missing factors from the characteristic overfitting. |
[71] |
Neural networks | Classification, Regression | Variable independence, linearity. | Can be used for classification and regression, able to use the Boolean functions; Allows inputs with noise. |
Overfitting due to too many attributes; Hard to understand the algorithm structure. |
[71] |
Support vector machines (SVM) | Classification, Regression | Model assumptions depend on the probability of default (PD). | Complexity of the model can be easily controlled; The models use non-linear boundaries. |
Hard to understand the algorithm structure; Data training is slow. |
[69,71] |
Kernel ridge regression (KRR) | Regression | Linear or nonlinear function. | Computational simplicity; Prevents overfitting. |
Computationally expensive. | [73,74] |
Bayesian optimisation (OP) | Optimisation | A non-convex problem; No access to derivative. | Hyperparameter tuning; Cost-efficient. |
The objective function can’t be modelled; High dimension problem. |
[75,76] |