FRM Part I · FRM Exam Part I · Machine-Learning Methods
A risk manager lowers the probability threshold at which a logistic model classifies a borrower as a defaulter, from 0.50 to 0.30. Which outcome is most likely?
Recall rises, or at least does not fall, and the false positive rate rises or stays the same. A lower threshold flags more borrowers as defaulters, so no earlier flagged case is dropped. This catches more true defaulters but also wrongly flags more good borrowers.
- ARecall rises and the false positive rate rises or stays the sameCorrect
- BRecall falls and precision rises
- CBoth recall and the false positive rate fall
- DRecall is unchanged because the model coefficients are unchanged
Explanation
A lower threshold labels more borrowers as defaulters, so every previously flagged case remains flagged and more are added. True positives cannot fall, so recall rises or stays the same, and false positives cannot fall either. Coefficients stay fixed, but the classification rule changes.
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