FRM Part I · FRM Exam Part I · Machine Learning and Prediction
Which task is best classified as a supervised learning regression problem rather than classification?
Predicting next month's portfolio loss in dollars is a supervised regression problem because the target is a continuous numeric value. Fraud flags, rating buckets and default indicators are categorical outcomes, so those are classification problems.
- ALabeling transactions as fraudulent or legitimate
- BPredicting next month's portfolio loss amount in dollars from market variablesCorrect
- CAssigning bonds to rating buckets AAA, AA, A
- DIdentifying whether a borrower will default within one year
Explanation
Regression predicts a continuous numeric target. A dollar loss amount is continuous. The other options have categorical outcomes, so they are classification tasks.
Did you get it right without looking?
One question tells you little. A timed set on Machine Learning and Prediction shows your real accuracy, how long you take and where you lose marks.
More Machine Learning and Prediction questions
- A LASSO regression with a single standardized predictor minimizes the sum of squared residuals plus lambda times the absolute value of the c…
- A PCA on six standardized variables yields eigenvalues of 3.0, 1.5, 0.6, 0.45, 0.30 and 0.15. What is the minimum number of components neede…
- A neural network with one output neuron uses a squared-error loss L = (y - ŷ)^2 and a linear output ŷ = w·h, where h = 3 is the hidden activ…
- A bank tests a default-prediction classifier on 200 loans. The model flags 40 loans as defaults, of which 30 actually defaulted. In total 50…
- In a random forest, each tree is trained on a bootstrap sample, leaving roughly one third of observations out of that tree's sample. How are…
- An analyst has 1,000 monthly observations and uses a 60/20/20 split into training, validation and test sets. Which statement about the use o…