FRM Part I · FRM Exam Part I · Machine Learning and Prediction
A risk analyst wants to group a bank's corporate borrowers into clusters based on financial ratios, with no predefined default labels available. Which type of machine learning is being applied?
This is unsupervised learning, because the analyst is grouping borrowers by similarity in financial ratios without any labeled outcome such as default. Supervised learning requires known target labels, which are not available here, so clustering falls under the unsupervised category.
- ASupervised learning
- BUnsupervised learningCorrect
- CReinforcement learning
- DClassification with labeled targets
Explanation
Unsupervised learning finds structure in data without labeled outcomes. Clustering of borrowers without default labels is a standard example. Supervised learning would need a known target such as a default flag.
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