CFA Level I · CFA Level I Exam · Introduction to Financial Data Science
A fund uses a model that classifies firms as likely to default or not, using labeled historical data on past defaults and firm characteristics. This approach is best described as:
This is supervised learning. The model is trained on historical data where the outcome, default or no default, is known and labeled, and it learns to predict that target. Unsupervised methods lack labeled targets, so they do not fit this classification task.
- Aunsupervised learning.
- Bsupervised learning.Correct
- Creinforcement learning with no labeled target.
Explanation
Supervised learning trains on inputs paired with known labeled outcomes, here default or no default. Unsupervised learning has no labeled target and finds structure such as clusters. The third option is wrong because the data are labeled.
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