FRM Part I · FRM Exam Part I · Machine-Learning Methods
A risk analyst has a dataset of 20,000 past retail loans, each labelled with whether the borrower defaulted within 12 months, and wants a model that predicts default for new applicants. Which type of machine learning does this describe?
This is supervised learning, because every historical loan carries a known default label and the model learns to map borrower characteristics to that outcome in order to predict default for new applicants. Unsupervised methods have no labelled target.
- ASupervised learningCorrect
- BUnsupervised learning
- CReinforcement learning
- DDimensionality reduction
Explanation
The data contain labelled outcomes (default or not), and the aim is to learn a mapping from borrower features to that label. This is supervised learning. Unsupervised learning has no labelled target and looks for structure such as clusters.
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