An Utility Function For Monotonic Binning

This article is originally published at https://statcompute.wordpress.com

In all monotonic algorithms that I posted before, I heavily relied on the smbinning::smbinning.custom() function contributed by Herman Jopia as the utility function generating the binning output and therefore feel deeply indebted to his excellent work. However, the availability of smbinning::smbinning.custom() function shouldn’t become my excuse for being lazy. Over the weekend, I drafted a function, e.g. manual_bin(), serving the similar purpose.

Although it is not as flexible and elegant as Herman’s work, the manual_bin() function does have certain advantages of handling miss values and therefore improves the calculation of WoE and Information Value for missing values.
1. For the missing-value category, if there are both good and bad records, then this category will be considered a standalone bin.
2. For the missing-value category, if there are only either good or bad records but not both, then this category will be merged into the bin with lowest or highest bad rate. Therefore, WoE and IV for the missing value won’t be shown as “NaN” again.

In addition, the output of manual_bin() function also includes a set of rules that might be potentially applied to R dataframe in order to generate WoE transformations, on which I will show in the future.

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This article is originally published at https://statcompute.wordpress.com
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