YAP: Yet Another Probabilistic Neural Network

By the end of 2019, I finally managed to wrap up my third R package YAP (https://github.com/statcompute/yap) that implements the Probabilistic Neural Network (Specht, 1990) for the N-category pattern recognition with N > 2. Similar to GRNN, PNN shares same benefits of instantaneous training, simple structure, and global convergence.

Below is a demonstration showing how to use the YAP package and a comparison between the multinomial regression and the PNN. As shown below, both approaches delivered very comparable predictive performance. In this particular example, PNN even performed slightly better in terms of the cross-entropy for a separate testing dataset.

data("Heating", package = "mlogit")
Y <- Heating[, 2]
X <- scale(Heating[, 3:15])
idx <- with(set.seed(1), sample(seq(nrow(X)), nrow(X) / 2))

### FIT A MULTINOMIAL REGRESSION AS A BENCHMARK ###
m1 <- nnet::multinom(Y ~ ., data = data.frame(X, Y)[idx, ], model = TRUE)
# cross-entropy for the testing set
yap::logl(y_pred = predict(m1, newdata = X, type = "prob")[-idx, ], y_true = yap::dummies(Y)[-idx, ])
# 1.182727

### FIT A PNN ###
n1 <- yap::pnn.fit(x = X[idx, ], y = Y[idx])
parm <- yap::pnn.search_logl(n1, yap::gen_latin(1, 10, 20), nfolds = 5)
n2 <- yap::pnn.fit(X[idx, ], Y[idx], sigma = parm$best$sigma)
# cross-entropy for the testing set
yap::logl(y_pred = yap::pnn.predict(n2, X)[-idx, ], y_true = yap::dummies(Y)[-idx, ])
# 1.148456

Improve General Regression Neural Network by Monotonic Binning

A major criticism on the binning algorithm as well as on the WoE transformation is that the use of binned predictors will decrease the model predictive power due to the loss of data granularity after the WoE transformation. While talk is cheap, I would use the example below to show that using the monotonic binning algorithm to pre-process predictors in a GRNN is actually able to alleviate the over-fitting and to improve the prediction accuracy for the hold-out sample.

First of all, the whole dataset was split into half, e.g. one as the training sample and another as the hold-out sample. The smoothing parameter, e.g. sigma, was chosen through the random search and happened to be 2.198381 for both GRNNs.

For the first GRNN with untransformed raw predictors, the AUC for the training sample is 0.69 and the AUC for the hold-out sample is 0.66.
For the second GRNN with WoE-transformed predictors, the AUC for the training sample is 0.72 and the AUC for the hold-out sample is 0.69.

In this particular example, it is clearly shown that there is roughly a 4% – 5% improvement in the AUC statistic for both training and hold-out samples through the use of monotonic binning and WoE transformations.

	df1 <- read.table("credit_count.txt", header = T, sep = ",")
	df2 <- df1[which(df1$CARDHLDR == 1), ]
	Y <- df2$DEFAULT
	X <- scale(df2[, 3:ncol(df2)])
	i <- sample(seq(length(Y)), length(Y) / 2)

	# WITHOUT BINNING
	Y1 <- Y[i]
	Y2 <- Y[-i]
	X1 <- X[i, ]
	X2 <- X[-i, ]
	net11 <- grnn.fit(x = X1, y = Y1)
	test1 <- grnn.search_auc(net11, gen_latin(1, 3, 10), nfolds = 4)
	# $best
	# sigma auc
	# 2.198381 0.6297201
	net12 <- grnn.fit(x = X1, y = Y1, sigma = test1$best$sigma)
	MLmetrics::AUC(grnn.parpred(net12, X1), Y1)
	# 0.6855638
	MLmetrics::AUC(grnn.parpred(net12, X2), Y2)
	# 0.6555798

	# WITH BINNING
	df3 <- data.frame(df2[, 3:ncol(df2)], Y)
	bin_out <- batch_bin(df3, method = 3)
	df_woe <- batch_woe(df3, bin_out$BinLst)
	W <- scale(df_woe$df[, -1])
	W1 <- W[i, ]
	W2 <- W[-i, ]
	net21 <- grnn.fit(x = W1, y = Y1)
	test2 <- grnn.search_auc(net21, gen_latin(1, 3, 10), nfolds = 4)
	# $best
	# sigma auc
	# 2.198381 0.6820317
	net22 <- grnn.fit(x = W1, y = Y1, sigma = test2$best$sigma)
	MLmetrics::AUC(grnn.parpred(net22, W1), Y1)
	# 0.7150051
	MLmetrics::AUC(grnn.parpred(net22, W2), Y2)
	# 0.6884229

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grnn_bin.R

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GRNN with Small Samples

After a bank launches a new product or acquires a new portfolio, the risk modeling team would often be faced with a challenge of how to estimate the corresponding performance, e.g. risk or loss, with a limited number of data points conditional on business drivers or macro-economic indicators. For instance, it is required to project the 9-quarter loss in CCAR, regardless of the portfolio age. In such cases, the prevalent practice based upon conventional regression models might not be applicable given the requirement for a sufficient number of samples in order to draw the statistical inference. As a result, we would have to rely on the input of SME (Subject Matter Expert), to gauge the performance based on similar products and portfolios, or to fall back on simple statistical metrics such as Average or Median that can’t be intuitively related to predictors.

With the GRNN implemented in the YAGeR project (https://github.com/statcompute/yager), it is however technically feasible to project the expected performance conditional on predictors due to the fact that the projected Y_i of a future case is determined by the distance between the predictor vector X_i and each X vector in the training sample, subject to a smoothing parameter namely Sigma. While more samples in the training data are certainly helpful to estimate a generalizable model, a couple data points, e.g. even only one or two data points in the extreme case, are also conceptually sufficient to form a GRNN that is able to generate sensible projections without violating statistical assumptions.

Following are a couple practical considerations.

Although normalizing the input data, e.g. X matrix, in a GRNN is usually necessary for the numerical reason, the exact scaling is not required. Practically, the “rough” scaling can be employed and ranges or variances used in the normalization can be based upon the historical data of X that might not be reflected in the training data with only a small sample size.
With limited data points in the training data, the Sigma value can be chosen by the L-O-O (Leave-One-Out) or empirically based upon another GRNN with a similar data structure that might or might not be related to the training data. What’s more, it is easy enough to dynamically fine-tune or refresh the Sigma value with more data samples becoming available along the time.
While there is no requirement for the variable selection in a GRNN, the model developer does have the flexibility of judgmentally choosing predictors based upon the prior information and eliminating variables not showing correct marginal effects in PDP (https://statcompute.wordpress.com/2019/10/19/partial-dependence-plot-pdp-of-grnn).

Below is an example of using 100 data points as the training sample to predict LGD within the unity interval of 1,000 cases with both GLM and GRNN. Out of 100 trials, while the GLM only outperformed the simple average for 32 times, the GRNN was able to do better for 76 times.

	source("yager.R")
	df <- read.table("lgd", header = T)[, 1:8]
	Y <- 1 – df$rr
	X <- scale(df[, 2:8])
	pre.N <- 1000
	trn.N <- 100
	try.N <- 100
	seeds <- floor(with(set.seed(2020), runif(try.N) * 1e8))

	test_glm <- function(seed) {
	i1 <- with(set.seed(seed), sample(seq(length(Y)), pre.N))
	Y1 <- Y[i1]
	X1 <- X[i1, ]
	Y2 <- Y[-i1]
	X2 <- X[-i1, ]
	i2 <- with(set.seed(seed), sample(seq(length(Y2)), trn.N))
	gm <- glm(Y2 ~ ., data = data.frame(Y2, X2)[i2, ], family = quasibinomial)
	round(MLmetrics::R2_Score(predict(gm, newdata = data.frame(X1), type = "response"), Y1), 4)
	}

	perf.glm <- Reduce(c, lapply(seeds, test_glm))
	summary(perf.glm)
	# Min. 1st Qu. Median Mean 3rd Qu. Max.
	# -0.39300 -0.10483 -0.02280 -0.05135 0.01230 0.08920
	sum(perf.glm > 0) / length(perf.glm)
	# [1] 0.32

	test_grnn <- function(seed) {
	i1 <- with(set.seed(seed), sample(seq(length(Y)), pre.N))
	Y1 <- Y[i1]
	X1 <- X[i1, ]
	Y2 <- Y[-i1]
	X2 <- X[-i1, ]
	i2 <- with(set.seed(seed), sample(seq(length(Y2)), trn.N))
	gn <- grnn.fit(X2[i2, ], Y2[i2])
	round(MLmetrics::R2_Score(grnn.predict(gn, X1), Y1), 4)
	}

	perf.grnn <- Reduce(c, lapply(seeds, test_grnn))
	summary(perf.grnn)
	# Min. 1st Qu. Median Mean 3rd Qu. Max.
	# -0.06130 0.00075 0.03075 0.02739 0.05437 0.10000
	sum(perf.grnn > 0) / length(perf.grnn)
	# [1] 0.76

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grnn_SmallSample.R

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GRNN vs. GAM

In practice, GRNN is very similar to GAM (Generalized Additive Models) in the sense that they both shared the flexibility of approximating non-linear functions. In the example below, both GRNN and GAM were applied to the Kyphosis data that has been widely experimented in examples of GAM and revealed very similar patterns of functional relationships between model predictors and the response (red for GRNN and blue for GAM). However, while we have to determine the degree of freedom for each predictor in order to control the smoothness of a GAM model, there is only one tuning parameter governing the overall fitting of a GRNN model.

	data(kyphosis, package = "gam")
	y <- ifelse(kyphosis$Kyphosis == "present", 1, 0)
	x <- scale(kyphosis[, -1])
	### FIT A GRNN
	net1 <- grnn.fit(x = x, y = y)
	test <- grnn.search_auc(net1, sigmas = gen_sobol(min = 0.5, max = 1.5, n = 50), nfolds = 20)
	net2 <- grnn.fit(x = x, y = y, sigma = min(test$best$sigma))
	### FIT A GAM
	library(gam)
	gam1 <- gam(y~ Age + Number + Start, data = data.frame(y, x), family = binomial)
	step <- step.Gam(gam1, data = data.frame(x, y), direction = "both",
	scope = list("Age" = ~1 + Age + s(Age, 3) + s(Age, 4) + s(Age, 5),
	"Number" = ~1 + Number + s(Number, 3) + s(Number, 4) + s(Number, 5),
	"Start" = ~1 + Start + s(Start, 3)+ s(Start, 4) + s(Start, 5)))
	# Start: y ~ Age + Number + Start; AIC= 69.3799
	# Step:1 y ~ s(Age, 3) + Number + Start ; AIC= 66.1469
	# Step:2 y ~ s(Age, 3) + Number + s(Start, 3) ; AIC= 64.1875
	gam2 <- gam::gam(y ~ s(Age, 3) + Number + s(Start, 3), data = data.frame(x, y), family = binomial)
	### PLOTTING
	par(mfrow = c(2, 3))
	for (i in 1:ncol(net2$x)) grnn.margin(net2, i)
	plot(gam2, col = "blue", lwd = 5)

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compare_gam.R

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gam

Permutation Feature Importance (PFI) of GRNN

In the post https://statcompute.wordpress.com/2019/10/13/assess-variable-importance-in-grnn, it was shown how to assess the variable importance of a GRNN by the decrease in GoF statistics, e.g. AUC, after averaging or dropping the variable of interest. The permutation feature importance evaluates the variable importance in a similar manner by permuting values of the variable, which attempts to break the relationship between the predictor and the response.

Today, I added two functions to calculate PFI in the YAGeR project, e.g. the grnn.x_pfi() function (https://github.com/statcompute/yager/blob/master/code/grnn.x_pfi.R) calculating PFI of an individual variable and the grnn.pfi() function (https://github.com/statcompute/yager/blob/master/code/grnn.pfi.R) calculating PFI for all variables in the GRNN.

Below is an example showing how to use PFI to evaluate the variable importance. It turns out that the outcome looks very similar to the one created by the grnn.imp() function previously discussed.

	### INITIATE A GRNN
	net1 <- grnn.fit(x = X1, y = Y1)
	### FIND THE OPTIMIZED PARAMETER
	best <- grnn.optmiz_auc(net1, lower = 1, upper = 3)
	### FIT A GRNN WITH THE OPTIMIZED PARAMETER
	net2 <- grnn.fit(x = X1, y = Y1, sigma = best$sigma)
	### CALCULATE PFI BY TRYING 1000 RANDOM PERMUTATIONS
	pfi_rank <- grnn.pfi(net2, ntry = 1000)
	# idx var pfi
	# 9 woe.bureau_score 0.06821683
	# 8 woe.rev_util 0.03277195
	# 1 woe.tot_derog 0.02845173
	# 7 woe.tot_rev_line 0.01680968
	# 10 woe.ltv 0.01416647
	# 2 woe.tot_tr 0.00610415
	# 11 woe.tot_income 0.00595962
	# 4 woe.tot_open_tr 0.00561115
	# 3 woe.age_oldest_tr 0.00508052
	# 5 woe.tot_rev_tr 0.00000000
	# 6 woe.tot_rev_debt 0.00000000
	### PLOT PFI
	barplot(pfi_rank$pfi, beside = TRUE, col = heat.colors(nrow(pfi_rank)), border = NA, yaxt = "n",
	names.arg = substring(pfi_rank$var, 5), main = "Permutation Feature Importance")
	### EXTRACT VARIABLES WITH 0 PFI
	excol <- pfi_rank[pfi_rank$pfi == 0, ]$idx
	# 5 6
	### AUC FOR HOLD-OUT SAMPLE WITH ALL VARIABLES
	MLmetrics::AUC(y_pred = grnn.parpred(grnn.fit(x = X1, y = Y1, sigma = best$sigma), X2), y_true = Y2)
	# 0.7584476
	### AUC FOR HOLD-OUT SAMPLE WITH PFI > 0 VARIABLES
	MLmetrics::AUC(y_pred = grnn.parpred(grnn.fit(x = X1[, -excol], y = Y1, sigma = best$sigma), X2[, -excol]), y_true = Y2)
	# 0.7622679

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use_pfi.R

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pfi

Partial Dependence Plot (PDP) of GRNN

The function grnn.margin() (https://github.com/statcompute/yager/blob/master/code/grnn.margin.R) was my first attempt to explore the relationship between each predictor and the response in a General Regression Neural Network, which usually is considered the Black-Box model. The idea is described below:

First trained a GRNN with the original training dataset
Created an artificial dataset from the training data by keeping distinct values of the variable that we are interested in but replacing all values of other variables with their means. For instance, given a dataset with three variables X1, X2, and X3, if we are interested in the marginal effect of X1 with 3 distinct values, e.g. [X11 X12 X13], then the constructed dataset should look like {[X11 mean(X2) mean(X3)], [X12 mean(X2) mean(X3)], [X13 mean(X2) mean(X3)]}
Calculated predicted values, namely [Pred1 Pred2 Pred3], based on the constructed dataset by using the GRNN created in the first step
At last, the relationship between [X11 X12 X13] and [Pred1 Pred2 Pred3] is what we are looking for

The above-mentioned approach is computationally efficient but might be somewhat “brutal” in a sense that it doesn’t consider the variation in other variables.

By the end of Friday, my boss pointed me to a paper describing the partial dependence plot (Yes! In 53, we also have SVP who is technically savvy). The idea is very intriguing, albeit computationally expensive, and is delineated as below:

First trained a GRNN with the original training dataset
Based on the training dataset, get a list of distinct values from the variable of interest, e.g. [X11 X12 X13]. In this particular example, we created three separate datasets from the training data by keeping the other variables as they are but replacing all values of X1 with each of [X11 X12 X13] respectively
With each of three constructed datasets above, calculated predicted values and then averaged them out such that we would have an average of predicted values for each of [X11 X12 X13], namely [Pavg1 Pavg2 Pavg3]
The relationship between [X11 X12 X13] and [Pavg1 Pavg2 Pavg3] is the so-called Partial Dependence

The idea of PDP has been embedded in the YAGeR project (https://github.com/statcompute/yager/blob/master/code/grnn.partial.R). In the chart below, I compared outcomes of grnn.partial() and grnn.margin() side by side for two variables, e.g. the first not so predictive and the second very predictive. In this particular comparison, both appeared almost identical.

dpd

Merge MLP And CNN in Keras

In the post (https://statcompute.wordpress.com/2017/01/08/an-example-of-merge-layer-in-keras), it was shown how to build a merge-layer DNN by using the Keras Sequential model. In the example below, I tried to scratch a merge-layer DNN with the Keras functional API in both R and Python. In particular, the merge-layer DNN is the average of a multilayer perceptron network and a 1D convolutional network, just for fun and curiosity. Since the purpose of this exercise is to explore the network structure and the use case of Keras API, I didn’t bother to mess around with parameters.

	library(keras)
	df <- read.csv("credit_count.txt")
	Y <- matrix(df[df$CARDHLDR == 1, ]$DEFAULT)
	X <- scale(df[df$CARDHLDR == 1, ][3:14])

	inputs <- layer_input(shape = c(ncol(X)))

	mlp <- inputs %>%
	layer_dense(units = 64, activation = 'relu', kernel_initializer = 'he_uniform') %>%
	layer_dropout(rate = 0.2, seed = 1) %>%
	layer_dense(units = 64, activation = 'relu', kernel_initializer = 'he_uniform') %>%
	layer_dropout(rate = 0.2, seed = 1) %>%
	layer_dense(1, activation = 'sigmoid')

	cnv <- inputs %>%
	layer_reshape(c(ncol(X), 1)) %>%
	layer_conv_1d(32, 4, activation = 'relu', padding = "same", kernel_initializer = 'he_uniform') %>%
	layer_max_pooling_1d(2) %>%
	layer_spatial_dropout_1d(0.2) %>%
	layer_flatten() %>%
	layer_dense(1, activation = 'sigmoid')

	avg <- layer_average(c(mlp, cnv))
	mdl <- keras_model(inputs = inputs, outputs = avg)
	mdl %>% compile(optimizer = optimizer_sgd(lr = 0.1, momentum = 0.9), loss = 'binary_crossentropy', metrics = c('binary_accuracy'))
	mdl %>% fit(x = X, y = Y, epochs = 50, batch_size = 1000, verbose = 0)
	mdl %>% predict(x = X)

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keras_average.R

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	from numpy.random import seed
	from pandas import read_csv, DataFrame
	from sklearn.preprocessing import scale
	from keras.layers.convolutional import Conv1D, MaxPooling1D
	from keras.layers.merge import average
	from keras.layers import Input, Dense, Flatten, Reshape, Dropout, SpatialDropout1D
	from keras.models import Model
	from keras.optimizers import SGD
	from keras.utils import plot_model

	df = read_csv("credit_count.txt")
	Y = df[df.CARDHLDR == 1].DEFAULT
	X = scale(df[df.CARDHLDR == 1].iloc[:, 2:12])
	D = 0.2
	S = 1

	seed(S)
	### INPUT DATA
	inputs = Input(shape = (X.shape[1],))
	### DEFINE A MULTILAYER PERCEPTRON NETWORK
	mlp_net = Dense(64, activation = 'relu', kernel_initializer = 'he_uniform')(inputs)
	mlp_net = Dropout(rate = D, seed = S)(mlp_net)
	mlp_net = Dense(64, activation = 'relu', kernel_initializer = 'he_uniform')(mlp_net)
	mlp_net = Dropout(rate = D, seed = S)(mlp_net)
	mlp_out = Dense(1, activation = 'sigmoid')(mlp_net)
	mlp_mdl = Model(inputs = inputs, outputs = mlp_out)
	### DEFINE A CONVOLUTIONAL NETWORK
	cnv_net = Reshape((X.shape[1], 1))(inputs)
	cnv_net = Conv1D(32, 4, activation = 'relu', padding = "same", kernel_initializer = 'he_uniform')(cnv_net)
	cnv_net = MaxPooling1D(2)(cnv_net)
	cnv_net = SpatialDropout1D(D)(cnv_net)
	cnv_net = Flatten()(cnv_net)
	cnv_out = Dense(1, activation = 'sigmoid')(cnv_net)
	cnv_mdl = Model(inputs = inputs, outputs = cnv_out)
	### COMBINE MLP AND CNV
	con_out = average([mlp_out, cnv_out])
	con_mdl = Model(inputs = inputs, outputs = con_out)
	sgd = SGD(lr = 0.1, momentum = 0.9)
	con_mdl.compile(optimizer = sgd, loss = 'binary_crossentropy', metrics = ['binary_accuracy'])
	con_mdl.fit(X, Y, batch_size = 2000, epochs = 50, verbose = 0)
	plot_model(con_mdl, to_file = 'model.png', show_shapes = True, show_layer_names = True)

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keras_average.py

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model

Assess Variable Importance In GRNN

Technically speaking, there is no need to evaluate the variable importance and to perform the variable selection in the training of a GRNN. It’s also been a consensus that the neural network is a black-box model and it is not an easy task to assess the variable importance in a neural network. However, from the practical prospect, it is helpful to understand the individual contribution of each predictor to the overall goodness-of-fit of a GRNN. For instance, the variable importance can help us make up a beautiful business story to decorate our model. In addition, dropping variables with trivial contributions also helps us come up with a more parsimonious model as well as improve the computational efficiency.

In the YAGeR project (https://github.com/statcompute/yager), two functions have been added with the purpose to assess the variable importance in a GRNN. While the grnn.x_imp() function (https://github.com/statcompute/yager/blob/master/code/grnn.x_imp.R) will provide the importance assessment of a single variable, the grnn.imp() function (https://github.com/statcompute/yager/blob/master/code/grnn.imp.R) can give us a full picture of the variable importance for all variables in the GRNN. The returned value “imp1” is calculated as the decrease in AUC with all values for the variable of interest equal to its mean and the “imp2” is calculated as the decrease in AUC with the variable of interest dropped completely. The variable with a higher value of the decrease in AUC is deemed more important.

Below is an example demonstrating how to assess the variable importance in a GRNN. As shown in the output, there are three variables making no contribution to AUC statistic. It is also noted that dropping three unimportant variables in the GRNN can actually increase AUC in the hold-out sample. What’s more, marginal effects of variables remaining in the GRNN make more sense now with all showing nice monotonic relationships, in particular “tot_open_tr”.

	Y <- df$bad
	X <- scale(df_woe$df[, -1])
	set.seed(2019)
	i <- sample(seq(length(Y)), length(Y) / 4)
	Y1 <- Y[i]
	Y2 <- Y[-i]
	X1 <- X[i, ]
	X2 <- X[-i, ]
	net1 <- grnn.fit(x = X1, y = Y1)
	rst <- grnn.optmiz_auc(net1, lower = 1, upper = 3)
	net2 <- grnn.fit(x = X1, y = Y1, sigma = rst$sigma)
	xrank <- grnn.imp(net2)
	#idx var imp1 imp2
	# 9 woe.bureau_score 0.03629427 0.03490435
	# 8 woe.rev_util 0.01150345 0.01045408
	# 1 woe.tot_derog 0.01033528 0.00925820
	# 10 woe.ltv 0.01033330 0.00910178
	# 11 woe.tot_income 0.00506666 0.00509438
	# 3 woe.age_oldest_tr 0.00430835 0.00476373
	# 4 woe.tot_open_tr 0.00392424 0.00523496
	# 2 woe.tot_tr 0.00123152 0.00215021
	# 5 woe.tot_rev_tr 0.00000000 0.00000000
	# 6 woe.tot_rev_debt 0.00000000 0.00000000
	# 7 woe.tot_rev_line 0.00000000 0.00000000
	excol <- xrank[xrank$imp1 == 0, ]$idx
	#[1] 5 6 7
	MLmetrics::AUC(y_pred = grnn.parpred(net2, X2), y_true = Y2)
	# [1] 0.7584476
	MLmetrics::AUC(y_pred = grnn.parpred(grnn.fit(x = X1[, -excol], y = Y1, sigma = net2$sigma), X2[, -excol]), y_true = Y2)
	# [1] 0.7626386
	barplot(t(as.matrix(xrank[, 3:4])), beside = TRUE, col = c("lightcyan4", "lightcyan2"), border = NA, yaxt = "n",
	names.arg = substring(xrank$var, 5), main = "Variable Importance Rank", cex.names = 1)

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grnn.imp.R

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imp

margin

Hyper-Parameter Optimization of General Regression Neural Networks

A major advantage of General Regression Neural Networks (GRNN) over other types of neural networks is that there is only a single hyper-parameter, namely the sigma. In the previous post (https://statcompute.wordpress.com/2019/07/06/latin-hypercube-sampling-in-hyper-parameter-optimization), I’ve shown how to use the random search strategy to find a close-to-optimal value of the sigma by using various random number generators, including uniform random, Sobol sequence, and Latin hypercube sampling.

In addition to the random search, we can also directly optimize the sigma based on a pre-defined objective function by using the grnn.optmiz_auc() function (https://github.com/statcompute/yager/blob/master/code/grnn.optmiz_auc.R), in which either Golden section search by default or Brent’s method is employed in the one-dimension optimization. In the example below, the optimized sigma is able to yield a slightly higher AUC in both training and hold-out samples. As shown in the plot, the optimized sigma in red is right next to the best sigma in the random search.

	df <- readRDS("df.rds")
	source("mob.R")
	source("grnnet.R")
	bin_out <- batch_bin(df, 3)
	df_woe <- batch_woe(df, bin_out$BinLst)
	Y <- df$bad
	X <- scale(df_woe$df[, -1])
	set.seed(2019)
	i <- sample(seq(length(Y)), length(Y) / 4)
	Y1 <- Y[i]
	Y2 <- Y[-i]
	X1 <- X[i, ]
	X2 <- X[-i, ]
	net1 <- grnn.fit(x = X1, y = Y1)

	rst1 <- grnn.optmiz_auc(net1, lower = 1, upper = 3, nfolds = 3)
	# sigma auc
	# 2.267056 0.7610545
	S <- gen_latin(min = 1, max = 3, n = 20)
	rst2 <- grnn.search_auc(net1, sigmas = S, nfolds = 3)
	# sigma auc
	# 2.249354 0.7609994

	MLmetrics::AUC(y_pred = grnn.predict(grnn.fit(x = X1, y = Y1, sigma = rst1$sigma), X2), y_true = Y2)
	# 0.7458775
	MLmetrics::AUC(y_pred = grnn.predict(grnn.fit(x = X1, y = Y1, sigma = rst2$best$sigma), X2), y_true = Y2)
	# 0.7458687

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grnn.optmiz_auc.R

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Capture

Develop Performance Benchmark with GRNN

It has been mentioned in https://github.com/statcompute/GRnnet that GRNN is an ideal approach employed to develop performance benchmarks for a variety of risk models. People might wonder what the purpose of performance benchmarks is and why we would even need one at all. Sometimes, a model developer had to answer questions about how well the model would perform even before completing the model. Likewise, a model validator also wondered whether the model being validated has a reasonable performance given the data used and the effort spent. As a result, the performance benchmark, which could be built with the same data sample but an alternative methodology, is called for to address aforementioned questions.

While the performance benchmark can take various forms, including but not limited to business expectations, industry practices, or vendor products, a model-based approach should possess following characteristics:

– Quick prototype with reasonable efforts
– Comparable baseline with acceptable outcomes
– Flexible framework without strict assumptions
– Practical application to broad domains

With both empirical and conceptual advantages, GRNN is able to accommodate each of above-mentioned requirements and thus can be considered an appropriate candidate that might potentially be employed to develop performance benchmarks for a wide variety of models.

Below is an example illustrating how to use GRNN to develop a benchmark model for the logistic regression shown in https://statcompute.wordpress.com/2019/05/04/why-use-weight-of-evidence/. The function grnn.margin() was also employed to explore the marginal effect of each attribute in a GRNN.

	df <- readRDS("df.rds")
	source("mob.R")
	source("grnnet.R")

	# PRE-PROCESS THE DATA WITH MOB PACKAGE
	bin_out <- batch_bin(df, 3)
	bin_out$BinSum[order(-bin_out$BinSum$iv), ]
	# var nbin unique miss min median max ks iv
	# bureau_score 34 315 315 443 692.5 848 35.2651 0.8357
	# tot_rev_line 20 3617 477 0 10573.0 205395 26.8943 0.4442
	# age_oldest_tr 25 460 216 1 137.0 588 20.3646 0.2714
	# tot_derog 7 29 213 0 0.0 32 20.0442 0.2599
	# ltv 17 145 1 0 100.0 176 16.8807 0.1911
	# rev_util 12 101 0 0 30.0 100 16.9615 0.1635
	# tot_tr 15 67 213 0 16.0 77 17.3002 0.1425
	# tot_rev_debt 8 3880 477 0 3009.5 96260 8.8722 0.0847
	# tot_rev_tr 4 21 636 0 3.0 24 9.0779 0.0789
	# tot_income 17 1639 5 0 3400.0 8147167 10.3386 0.0775
	# tot_open_tr 7 26 1416 0 5.0 26 6.8695 0.0282

	# PERFORMAN WOE TRANSFORMATIONS
	df_woe <- batch_woe(df, bin_out$BinLst)

	# PROCESS AND STANDARDIZE THE DATA WITH ZERO MEAN AND UNITY VARIANCE
	Y <- df$bad
	X <- scale(df_woe$df[, -1])
	Reduce(rbind, Map(function(c) data.frame(var = colnames(X)[c], mean = mean(X[, c]), variance = var(X[, c])), seq(dim(X)[2])))
	# var mean variance
	#1 woe.tot_derog 2.234331e-16 1
	#2 woe.tot_tr -2.439238e-15 1
	#3 woe.age_oldest_tr -2.502177e-15 1
	#4 woe.tot_open_tr -2.088444e-16 1
	#5 woe.tot_rev_tr -4.930136e-15 1
	#6 woe.tot_rev_debt -2.174607e-16 1
	#7 woe.tot_rev_line -8.589630e-16 1
	#8 woe.rev_util -8.649849e-15 1
	#9 woe.bureau_score 1.439904e-15 1
	#10 woe.ltv 3.723332e-15 1
	#11 woe.tot_income 5.559240e-16 1

	# INITIATE A GRNN OBJECT
	net1 <- grnn.fit(x = X, y = Y)
	# CROSS-VALIDATION TO CHOOSE THE OPTIONAL SMOOTH PARAMETER
	S <- gen_sobol(min = 0.5, max = 1.5, n = 10, seed = 2019)
	cv <- grnn.cv_auc(net = net1, sigmas = S, nfolds = 5)
	# $test
	# sigma auc
	#1 1.4066449 0.7543912
	#2 0.6205723 0.7303415
	#3 1.0710133 0.7553075
	#4 0.6764866 0.7378430
	#5 1.1322939 0.7553664
	#6 0.8402438 0.7507192
	#7 1.3590402 0.7546164
	#8 1.3031974 0.7548670
	#9 0.7555905 0.7455457
	#10 1.2174429 0.7552097
	# $best
	# sigma auc
	#5 1.132294 0.7553664

	# REFIT A GRNN WITH THE OPTIMAL PARAMETER VALUE
	net2 <- grnn.fit(x = X, y = Y, sigma = cv$best$sigma)
	net2.pred <- grnn.parpred(net2, X)

	# BENCHMARK MODEL PERFORMANCE
	MLmetrics::KS_Stat(y_pred = net2.pred, y_true = df$bad)
	# 44.00242
	MLmetrics::AUC(y_pred = net2.pred, y_true = df$bad)
	# 0.7895033

	# LOGISTIC REGRESSION PERFORMANCE
	MLmetrics::KS_Stat(y_pred = fitted(mdl2), y_true = df$bad)
	# 42.61731
	MLmetrics::AUC(y_pred = fitted(mdl2), y_true = df$bad)
	# 0.7751298

	# MARGINAL EFFECT OF EACH ATTRIBUTE
	par(mfrow = c(3, 4))
	lapply(1:11, function(i) grnn.margin(net2, i))

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use_grnn.R

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grnn_margin

Dummy Is As Dummy Does

In the 1975 edition of “Applied multiple regression/correlation analysis for the behavioral sciences” by Jacob Cohen, an interesting approach of handling missing values in numeric variables was proposed with the purpose to improve the traditional single-value imputation, as described below:

– First of all, impute missing values by the value of mean or median
– And then create a dummy variable to flag out imputed values

In the setting of a regression model, both imputed and dummy variables would be included and therefore the number of independent variables are doubled.

Although the aforementioned approach has long been criticized and eventually abandoned by Cohen himself in the recent edition of the book, I was told that this obsolete technique is still being actively used.

Out of my own curiosity, I applied this dummy imputation approach to the data used in https://statcompute.wordpress.com/2019/05/04/why-use-weight-of-evidence and then compared it with the WoE imputation in the context of Logistic Regression.

Below are my observations:

– Since the dummy approach converts each numeric variable with missing values, the final model tends to have more independent variables, which is not desirable in terms of the model parsimony. For instance, there are 7 independent variables in the model with dummy imputation and only 5 in the model with WoE approach.

– The model performance doesn’t seem to justify the use of more independent variables in the regression with the dummy imputation. As shown in the output below, ROC statistic from the model with WoE approach is significantly better than the one with the dummy imputation based on the DeLong’s test, which is also consistent with the result of Vuong test.

	df <- readRDS("df.rds")
	source("mob.R")
	bin_out <- batch_bin(df, 3)
	bin_out$BinSum[order(-bin_out$BinSum$iv), ]
	# var nbin unique miss min median max ks iv
	# bureau_score 34 315 315 443 692.5 848 35.2651 0.8357
	# tot_rev_line 20 3617 477 0 10573.0 205395 26.8943 0.4442
	# age_oldest_tr 25 460 216 1 137.0 588 20.3646 0.2714
	# tot_derog 7 29 213 0 0.0 32 20.0442 0.2599
	# ltv 17 145 1 0 100.0 176 16.8807 0.1911
	# rev_util 12 101 0 0 30.0 100 16.9615 0.1635
	# tot_tr 15 67 213 0 16.0 77 17.3002 0.1425
	# tot_rev_debt 8 3880 477 0 3009.5 96260 8.8722 0.0847
	# tot_rev_tr 4 21 636 0 3.0 24 9.0779 0.0789
	# tot_income 17 1639 5 0 3400.0 8147167 10.3386 0.0775
	# tot_open_tr 7 26 1416 0 5.0 26 6.8695 0.0282

	# ONLY SELECT VARIABLES WITH IV > 0.1
	dummies <- data.frame(
	bad = df$bad,
	tot_derog = ifelse(is.na(df$tot_derog), mean(df$tot_derog, na.rm = T), df$tot_derog),
	dummy.tot_derog = ifelse(is.na(df$tot_derog), 1, 0),
	tot_tr = ifelse(is.na(df$tot_tr), mean(df$tot_tr, na.rm = T), df$tot_tr),
	dummy.tot_tr = ifelse(is.na(df$tot_tr), 1, 0),
	age_oldest_tr = ifelse(is.na(df$age_oldest_tr), mean(df$age_oldest_tr, na.rm = T), df$age_oldest_tr),
	dummy.age_oldest_tr = ifelse(is.na(df$age_oldest_tr), 1, 0),
	tot_rev_line = ifelse(is.na(df$tot_rev_line), mean(df$tot_rev_line, na.rm = T), df$tot_rev_line),
	dummy.tot_rev_line = ifelse(is.na(df$tot_rev_line), 1, 0),
	rev_util = ifelse(is.na(df$rev_util), mean(df$rev_util, na.rm = T), df$rev_util),
	dummy.rev_util = ifelse(is.na(df$rev_util), 1, 0),
	bureau_score = ifelse(is.na(df$bureau_score), mean(df$bureau_score, na.rm = T), df$bureau_score),
	dummy.bureau_score = ifelse(is.na(df$bureau_score), 1, 0),
	ltv = ifelse(is.na(df$ltv), mean(df$ltv, na.rm = T), df$ltv),
	dummy.ltv = ifelse(is.na(df$ltv), 1, 0))

	dm1 <- summary(glm(bad ~ ., data = dummies, family = "binomial"))
	dx1 <- paste(row.names(dm1$coefficients)[dm1$coefficients[, 4] < 0.05][-1])
	dl1 <- as.formula(paste("bad", paste(dx1, collapse = " + "), sep = " ~ "))
	dm2 <- glm(dl1, data = dummies, family = "binomial")
	# Estimate Std. Error z value Pr(>\|z\|)
	#(Intercept) 5.827e+00 5.651e-01 10.311 < 2e-16 ***
	#age_oldest_tr -1.595e-03 4.526e-04 -3.523 0.000426 ***
	#tot_rev_line -1.684e-05 2.910e-06 -5.785 7.25e-09 ***
	#dummy.tot_rev_line 5.314e-01 1.434e-01 3.707 0.000210 ***
	#rev_util 3.183e-03 1.171e-03 2.718 0.006574 **
	#bureau_score -1.390e-02 8.075e-04 -17.209 < 2e-16 ***
	#dummy.bureau_score 7.339e-01 1.518e-01 4.835 1.33e-06 ***
	#ltv 2.451e-02 2.249e-03 10.895 < 2e-16 ***

	roc1 <- pROC::roc(response = df$bad, predictor = fitted(mdl2))
	roc2 <- pROC::roc(response = df$bad, predictor = fitted(dm2))
	pROC::roc.test(roc1, roc2, method = "delong", paired = T)
	# DeLong's test for two correlated ROC curves
	# data: roc1 and roc2
	# Z = 4.2369, p-value = 2.266e-05
	# alternative hypothesis: true difference in AUC is not equal to 0
	# sample estimates:
	# AUC of roc1 AUC of roc2
	# 0.7751298 0.7679757

	pscl::vuong(mdl2, dm2)
	# Vuong Non-Nested Hypothesis Test-Statistic:
	# Vuong z-statistic H_A p-value
	# Raw 4.275484 model1 > model2 9.5361e-06
	# AIC-corrected 4.565833 model1 > model2 2.4876e-06
	# BIC-corrected 5.534434 model1 > model2 1.5612e-08

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dummies.R

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Improve GRNN Efficiency by Weighting

In the post (https://statcompute.wordpress.com/2019/07/14/yet-another-r-package-for-general-regression-neural-network), several advantages of General Regression Neural Network (GRNN) have been discussed. However, as pointed out by Specht, a major weakness of GRNN is the high computational cost required for a GRNN to generate predicted values based on a new input matrix due to its unique network structure, e.g. the number of neurons equal to the number of training samples.

For practical purposes, there is however no need to assign a neuron to each training sample, given the data duplication in real-world model development samples. Instead, a weighting scheme can be employed to reflect the frequency count of each unique training sample. A major benefit of the weight assignment is the ability to improve the efficiency of calculating predicted values, which depends on the extent of data duplicates. More attractively, the weighting application can bring up the possibility of using clustering or binning techniques to preprocess the training data so as to overcome the aforementioned weakness to a large degree.

Below is a demonstration showing the efficiency gain by using the weighting scheme in GRNN.

First of all, I constructed a sample data with duplicates to double the size of the original Boston dataset. Based on the constructed data, a GRNN named “N1” was trained.
Secondly, I generated another sample data by aggregating the above constructed data based on unique samples and calculating the weight of each unique data point based on its frequency. Based on the aggregated data, another GRNN named “N2” was also trained.

As shown in the output, predicted vectors from both “N1” and “N2” are identical. However, the computing time can be reduced to half by applying the weighting. All R functions used in the example can be found in https://github.com/statcompute/GRnnet/blob/master/code/grnnet.R.

For people interested in the SAS implementation of GRNN, two SAS macros are also available in https://github.com/statcompute/GRnnet/blob/master/code/grnn_learn.SAS and https://github.com/statcompute/GRnnet/blob/master/code/grnn_pred.SAS.

	data(Boston, package = "MASS")

	### CONSTRUCT THE UNWEIGHTED DATA.FRAME WITH DUPLICATES
	df1 <- rbind(Boston[rep(seq(100), 5), ], Boston)
	nrow(df1)
	# 1006
	X1 <- scale(df1[, 1:13])
	Y1 <- df1[, 14]
	N1 <- grnn.fit(X1, Y1)

	### CONSTRUCT THE WEIGHTED DATA.FRAME WITHOUT DUPLICATES
	XY <- data.frame(X1, Y1)
	df2 <- Reduce(rbind, lapply(split(XY, XY[, colnames(XY)], drop = T),
	function(x_) data.frame(x_[1, ], cnt = nrow(x_))))
	nrow(df2)
	# 506
	sum(df2$cnt)
	# 1006
	X2 <- as.matrix(df2[, 1:13])
	Y2 <- df2[, 14]
	W2 <- df2[, 15]
	N2 <- grnn.fit(X2, Y2, W2)

	### IDENTICAL PREDICTED VALUES WITH UNWEIGHTED AND WEIGHTED DATA.FRAMES
	grnn.predone(N1, X1[1, ])
	# 24.69219
	grnn.predone(N2, X1[1, ])
	# 24.69219

	all.equal(grnn.predict(N1, X1[1:100, ]), grnn.predict(N2, X1[1:100, ]))
	# TRUE

	### COMPUTING TIME ROUGHLY LINEAR WITH RESPECT TO SIZE OF UNIQUE TRAINING SAMPLE
	rbenchmark::benchmark(replications = 10, order = "elapsed", relative = "elapsed",
	columns = c("test", "replications", "elapsed", "relative"),
	" NO WEIGHT" = grnn.predict(N1, X1[1:100, ]),
	"USE WEIGHT" = grnn.predict(N2, X1[1:100, ])
	)
	# test replications elapsed relative
	# 2 USE WEIGHT 10 2.157 1.000
	# 1 NO WEIGHT 10 5.506 2.553

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wt_grnn.R

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Yet Another R Package for General Regression Neural Network

Compared with other types of neural networks, General Regression Neural Network (Specht, 1991) is advantageous in several aspects.

Being an universal approximation function, GRNN has only one tuning parameter to control the overall generalization
The network structure of GRNN is surprisingly simple, with only one hidden layer and the number of neurons equal to the number of training samples.
GRNN is always able to converge globally and won’t be trapped by local solutions.
The training of GRNN is a simple 1-pass, regardless of the sample size, and doesn’t require time-consuming iterations.
Since any projected value of GRNN is the weighted average of training samples, predictions are bounded by the observed range.

The grnn package (https://cran.r-project.org/web/packages/grnn/index.html), which has not been updated since 2013, is the only implementation of GRNN on CRAN and was designed elegantly with a parsimonious set of functions and lots of opportunities for potential improvements.

The YAGeR project (https://github.com/statcompute/yager) is my attempt to provide a R implementation of GRNN, with several enhancements.

While the training function grnn.fit() is very similar to learn() and smooth() in the grnn package. three functions were designed to provide GRNN projections. The grnn.predone() function generates one projected value based on an input vector. Both grnn.predict() and grnn.parpred() functions generate a vector of projected values based on an input matrix. The only difference is that grnn.parpred() runs in parallel and therefore can be 3 times faster than grnn.predict() on my 4-core workstation.
While tuning the only hyper-parameter is the key in GRNN training, there are two functions in the GRnnet project to search for the optimal parameter through the n-fold cross validation, including grnn.cv_r2() for numeric outcomes and grnn.cv_auc() for binary outcomes.
In grnn.predone() function, while the default projection is based on the Euclidean distance, there is an option to calculate the GRNN projection based on the Manhattan distance as well for the sake of computational simplicity (Specht, 1991).

In the banking industry, GRNN can be useful in several areas. First of all, it can be employed as the replacement of splines to approximate the term structure of interest rates. Secondly, like other neural networks, it can be used in Fraud Detection and Anti-Money Laundering given its flexibility. At last, in the credit risk modeling, it can also be used to develop performance benchmarks and rapid prototypes for scorecards or Expected Loss models due to the simplicity.

Monotonic Binning Driven by Decision Tree

After the development of MOB package (https://github.com/statcompute/MonotonicBinning), I was asked by a couple users about the possibility of using the decision tree to drive the monotonic binning. Although I am not aware of any R package implementing the decision tree with the monotonic constraint, I did manage to find a solution based upon the decision tree.

The Rborist package is an implementation of the Random Forest that would enforce the monotonicity at the local level within each tree but not at the global level for the whole forest. However, with a few tweaks on the Rborist syntax, it is not difficult to convert the forest with many trees into the forest with a single tree. After all necessary adjustments, I finally ended up with a decision tree that can be used to drive the monotonic binning algorithm, as shown in the arb_bin() function below, and will consider adding it into the MOB package later.

	arb_bin <- function(data, y, x) {
	yname <- deparse(substitute(y))
	xname <- deparse(substitute(x))
	df1 <- subset(data, !is.na(data[[xname]]) & data[[yname]] %in% c(0, 1), select = c(xname, yname))
	df2 <- data.frame(y = df1[[yname]], x = df1[[xname]])
	spc <- cor(df2[, 2], df2[, 1], method = "spearman", use = "complete.obs")
	mdl <- Rborist::Rborist(as.matrix(df2$x), df2$y, noValidate = T, nTree = 1, regMono = spc / abs(spc),
	ctgCensus = "prob", minInfo = exp(-100), nSamp = nrow(df2) , withRepl = F)
	df3 <- data.frame(y = df2$y, x = df2$x, yhat = predict(mdl, newdata = as.matrix(df2$x), ctgCensus = "prob")$yPred)
	df4 <- Reduce(rbind,
	lapply(split(df3, df3$yhat),
	function(x) data.frame(maxx = max(x$x), yavg = mean(x$y), yhat = round(mean(x$yhat), 8))))
	df5 <- df4[order(df4$maxx), ]
	h <- ifelse(df5[["yavg"]][1] %in% c(0, 1), 2, 1)
	t <- ifelse(df5[["yavg"]][nrow(df5)] %in% c(0, 1), 2, 1)
	cuts <- df5$maxx[h:max(h, (nrow(df5) – t))]
	return(list(df = manual_bin(data, yname, xname, cuts = cuts),
	cuts = cuts))
	}

	arb_bin(df, bad, rev_util)
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 01 $X <= 24 2653 0.4545 0 414 0.1560 -0.3320 0.0452 13.6285
	# 02 $X > 24 & $X <= 36 597 0.1023 0 96 0.1608 -0.2963 0.0082 16.3969
	# 03 $X > 36 & $X <= 40 182 0.0312 0 32 0.1758 -0.1890 0.0011 16.9533
	# 04 $X > 40 & $X <= 58 669 0.1146 0 137 0.2048 -0.0007 0.0000 16.9615
	# 05 $X > 58 & $X <= 60 77 0.0132 0 16 0.2078 0.0177 0.0000 16.9381
	# 06 $X > 60 & $X <= 72 408 0.0699 0 95 0.2328 0.1636 0.0020 15.7392
	# 07 $X > 72 & $X <= 73 34 0.0058 0 8 0.2353 0.1773 0.0002 15.6305
	# 08 $X > 73 & $X <= 75 62 0.0106 0 16 0.2581 0.2999 0.0010 15.2839
	# 09 $X > 75 & $X <= 83 246 0.0421 0 70 0.2846 0.4340 0.0089 13.2233
	# 10 $X > 83 & $X <= 96 376 0.0644 0 116 0.3085 0.5489 0.0225 9.1266
	# 11 $X > 96 & $X <= 98 50 0.0086 0 17 0.3400 0.6927 0.0049 8.4162
	# 12 $X > 98 483 0.0827 0 179 0.3706 0.8263 0.0695 0.0000

	arb_bin(df, bad, tot_derog)
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 00 is.na($X) 213 0.0365 213 70 0.3286 0.6416 0.0178 2.7716
	# 01 $X <= 0 2850 0.4883 0 367 0.1288 -0.5559 0.1268 20.0442
	# 02 $X > 0 & $X <= 1 891 0.1526 0 193 0.2166 0.0704 0.0008 18.9469
	# 03 $X > 1 & $X <= 2 478 0.0819 0 121 0.2531 0.2740 0.0066 16.5222
	# 04 $X > 2 & $X <= 3 332 0.0569 0 86 0.2590 0.3050 0.0058 14.6321
	# 05 $X > 3 & $X <= 23 1064 0.1823 0 353 0.3318 0.6557 0.0931 0.4370
	# 06 $X > 23 9 0.0015 0 6 0.6667 2.0491 0.0090 0.0000

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do_arb_bin.R

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Chunk Averaging of GLM

Chunk Average (CA) is an interesting concept proposed by Matloff in the chapter 13 of his book “Parallel Computing for Data Science”. The basic idea is to partition the entire model estimation sample into chunks and then to estimate a glm for each chunk. Under the i.i.d assumption, the CA estimator with the chunked data is asymptotically equivalent to the estimator with the full data. The possibility of converting the full model estimation with an excessively large dataset to the chunked estimation with small pieces is particularly attractive in real-world model developments where the model convergence could be challenging given the data size.

The ca_glm() function below is my attempt to implement the Chunk Averaging of GLM. As shown, CA estimations by various chunks are consistent with the estimation with the full data.

	df1 <- read.csv("/mnt/d/projects/data/credit_count.txt")
	df2 <- df1[which(df1$CARDHLDR == 1), ]

	ca_glm <- function(fml, data, family, nchunk) {
	cls <- parallel::makeCluster(nchunk, type = "PSOCK")
	df1 <- parallel::parLapplyLB(cls, parallel::clusterSplit(cls, seq(nrow(data))),
	function(c_) data[c_,])
	parallel::clusterExport(cls, c("fml", "family", "data"), envir = environment())
	est <- parallel::parLapplyLB(cls, df1,
	function(d_) cbind(coef(summary(glm(fml, data = d_, family = family)))[, 1:2], nrow(d_) / nrow(data)))
	parallel::stopCluster(cls)
	df2 <- Reduce(rbind,
	lapply(est,
	function(e_) data.frame(name = format(rownames(e_), justify = "left"),
	beta = e_[, 1] * e_[, 3],
	var = (e_[, 2] * e_[, 3])^ 2)))
	df3 <- Reduce(rbind,
	lapply(split(df2, df2$name),
	function(d_) data.frame(name = d_$name[1],
	beta = sum(d_$beta),
	stder = sum(d_$var) ^ 0.5)))
	return(cbind(df3, zvalue = df3$beta / df3$stder, pvalue = 2 * pnorm(-abs(df3$beta / df3$stder))))
	}

	y <- "DEFAULT"
	x <- c("MAJORDRG", "MINORDRG", "INCOME")
	f <- as.formula(paste(y, paste(x, collapse = " + "), sep = " ~ "))
	summary(glm(f, data = df2, family = "binomial"))$coef
	# Estimate Std. Error z value Pr(\|z\|)
	# (Intercept) -1.2215970658 9.076358e-02 -13.459110 2.721743e-41
	# MAJORDRG 0.2030503715 6.921101e-02 2.933787 3.348538e-03
	# MINORDRG 0.1919770456 4.783751e-02 4.013107 5.992472e-05
	# INCOME -0.0004705599 3.918955e-05 -12.007282 3.253645e-33
	ca_glm(f, df2, "binomial", 2)[rank(rownames(summary(glm(f, data = df2, family = "binomial"))$coef)), ]
	# name beta stder zvalue pvalue
	# (Intercept) -1.2001768403 9.161584e-02 -13.100102 3.288167e-39
	# MAJORDRG 0.2024462446 6.936634e-02 2.918508 3.517103e-03
	# MINORDRG 0.1928945270 4.799079e-02 4.019407 5.834476e-05
	# INCOME -0.0004811946 3.974214e-05 -12.107919 9.589651e-34
	ca_glm(f, df2, "binomial", 4)[rank(rownames(summary(glm(f, data = df2, family = "binomial"))$coef)), ]
	# name beta stder zvalue pvalue
	# (Intercept) -1.1891569565 9.257056e-02 -12.845952 9.063064e-38
	# MAJORDRG 0.2008495039 7.084338e-02 2.835120 4.580846e-03
	# MINORDRG 0.2075713235 4.883860e-02 4.250149 2.136283e-05
	# INCOME -0.0004902169 4.032866e-05 -12.155548 5.360122e-34

	y <- "MAJORDRG"
	x <- c("ADEPCNT", "MINORDRG", "INCPER")
	f <- as.formula(paste(y, paste(x, collapse = " + "), sep = " ~ "))
	summary(glm(f, data = df2, family = "poisson"))$coef
	# Estimate Std. Error z value Pr(\|z\|)
	# (Intercept) -2.875143e+00 6.565395e-02 -43.792384 0.000000e+00
	# ADEPCNT 2.091082e-01 2.137937e-02 9.780844 1.360717e-22
	# MINORDRG 5.249111e-01 1.775197e-02 29.569171 3.723779e-192
	# INCPER 2.018335e-05 1.683187e-06 11.991151 3.953735e-33
	ca_glm(f, df2, "poisson", 2)[rank(rownames(summary(glm(f, data = df2, family = "poisson"))$coef)), ]
	# name beta stder zvalue pvalue
	# (Intercept) -2.876932e+00 6.589413e-02 -43.659914 0.000000e+00
	# ADEPCNT 2.072821e-01 2.151670e-02 9.633546 5.770316e-22
	# MINORDRG 5.269996e-01 1.791464e-02 29.417248 3.304900e-190
	# INCPER 2.015435e-05 1.692556e-06 11.907644 1.079855e-32
	ca_glm(f, df2, "poisson", 4)[rank(rownames(summary(glm(f, data = df2, family = "poisson"))$coef)), ]
	# name beta stder zvalue pvalue
	# (Intercept) -2.890965e+00 6.723771e-02 -42.996187 0.000000e+00
	# ADEPCNT 2.112105e-01 2.179890e-02 9.689044 3.356557e-22
	# MINORDRG 5.334541e-01 1.848846e-02 28.853359 4.598288e-183
	# INCPER 2.012836e-05 1.744654e-06 11.537165 8.570364e-31

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ca_glm.R

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Latin Hypercube Sampling in Hyper-Parameter Optimization

In my previous post https://statcompute.wordpress.com/2019/02/03/sobol-sequence-vs-uniform-random-in-hyper-parameter-optimization/, I’ve shown the difference between the uniform pseudo random and the quasi random number generators in the hyper-parameter optimization of machine learning.

Latin Hypercube Sampling (LHS) is another interesting way to generate near-random sequences with a very simple idea. Let’s assume that we’d like to perform LHS for 10 data points in the 1-dimension data space. We first partition the whole data space into 10 equal intervals and then randomly select a data point from each interval. For the N-dimension LHS with N > 1, we just need to independently repeat the 1-dimension LHS for N times and then randomly combine these sequences into a list of N-tuples.

LHS is similar to the Uniform Random in the sense that the Uniform Random number is drawn within each equal-space interval. On the other hand, LHS covers the data space more evenly in a way similar to the Quasi Random, such as Sobol Sequence. A comparison below shows how each of three looks like in the 2-dimension data space.

unifm_2d <- function(n, seed) {
  set.seed(seed)
  return(replicate(2, runif(n)))
}

sobol_2d <- function(n, seed) {
  return(randtoolbox::sobol(n, dim = 2, scrambling = 3, seed = seed))
}

latin_2d <- function(n, seed) {
  set.seed(seed)
  return(lhs::randomLHS(n, k = 2))
}

par(mfrow = c(1, 3))
plot(latin_2d(100, 2019), main = "LATIN HYPERCUBE", xlab = '', ylab = '', cex = 2, col = "blue")
plot(sobol_2d(100, 2019), main = " SOBOL SEQUENCE", xlab = '', ylab = '', cex = 2, col = "red")
plot(unifm_2d(100, 2019), main = " UNIFORM RANDOM", xlab = '', ylab = '', cex = 2, col = "black")

compare3

In the example below, three types of random numbers are applied to the hyper-parameter optimization of General Regression Neural Network (GRNN) in the 1-dimension case. While both Latin Hypercube and Sobol Sequence generate similar averages of CV R-squares, the variance of CV R-squares for Latin Hypercube is much lower. With no surprise, the performance of simple Uniform Random remains the lowest, e.g. lower mean and higher variance.

data(Boston, package = "MASS")
df <- data.frame(y = Boston[, 14], scale(Boston[, -14]))
gn <- grnn::smooth(grnn::learn(df), sigma = 1)

grnn.predict <- function(nn, dt) {
  Reduce(c, lapply(seq(nrow(dt)), function(i) grnn::guess(nn, as.matrix(dt[i, ]))))
}

r2 <- function(act, pre) {
  return(1 - sum((pre - act) ^ 2) / sum((act - mean(act)) ^ 2))
}

grnn.cv <- function(nn, sigmas, nfolds, seed = 2019) {
  dt <- nn$set
  set.seed(seed)
  fd <- caret::createFolds(seq(nrow(dt)), k = nfolds)
  cv <- function(s) {
    rs <- Reduce(rbind,
                 lapply(fd,
                        function(f) data.frame(Ya = nn$Ya[unlist(f)],
                                               Yp = grnn.predict(grnn::smooth(grnn::learn(nn$set[unlist(-f), ]), s),
                                                                 nn$set[unlist(f), -1]))))
    return(data.frame(sigma = s, R2 = r2(rs$Ya, rs$Yp)))
  }
  cl <- parallel::makeCluster(min(nfolds, parallel::detectCores() - 1), type = "PSOCK")
  parallel::clusterExport(cl, c("fd", "nn", "grnn.predict", "r2"),  envir = environment())
  rq <- Reduce(rbind, parallel::parLapply(cl, sigmas, cv))
  parallel::stopCluster(cl)
  return(rq[rq$R2 == max(rq$R2), ])
}

gen_unifm <- function(min = 0, max = 1, n, seed) {
  set.seed(seed)
  return(round(min + (max - min) * runif(n), 8))
}

gen_sobol <- function(min = 0, max = 1, n, seed) {
  return(round(min + (max - min) * randtoolbox::sobol(n, dim = 1, scrambling = 3, seed = seed), 8))
}

gen_latin <- function(min = 0, max = 1, n, seed) {
  set.seed(seed)
  return(round(min + (max - min) * c(lhs::randomLHS(n, k = 1)), 8))
}

nfold <- 10
nseed <- 10

sobol_out <- Reduce(rbind, lapply(seq(nseed), function(x) grnn.cv(gn, gen_sobol(0.1, 1, 10, x), nfold)))
latin_out <- Reduce(rbind, lapply(seq(nseed), function(x) grnn.cv(gn, gen_latin(0.1, 1, 10, x), nfold)))
unifm_out <- Reduce(rbind, lapply(seq(nseed), function(x) grnn.cv(gn, gen_unifm(0.1, 1, 10, x), nfold)))

out <- rbind(cbind(type = rep("LH", nseed), latin_out),
             cbind(type = rep("SS", nseed), sobol_out),
             cbind(type = rep("UR", nseed), unifm_out))

title <- "Latin Hypercube vs. Sobol Sequence vs. Uniform Random"
boxplot(R2 ~ type, data = out, main = title, ylab = "CV RSquare", xlab = "Sequence Type")

aggregate(R2 ~ type, data = out, function(x) round(c(avg = mean(x), var = var(x)), 8))
#type     R2.avg     R2.var
#  LH 0.82645414 0.00000033
#  SS 0.82632171 0.00000075
#  UR 0.82536693 0.00000432

cv2

Parallel R: Socket or Fork

In the R parallel package, there are two implementations of parallelism, e.g. fork and socket, with pros and cons.

For the fork, each parallel thread is a complete duplication of the master process with the shared environment, including objects or variables defined prior to the kickoff of parallel threads. Therefore, it runs fast. However, the major limitation is that the fork doesn’t work on the Windows system.

On the other hand, the socket works on all operating systems. Each thread runs separately without sharing objects or variables, which can only be passed from the master process explicitly. As a result, it runs slower due to the communication overhead.

Below is an example showing the performance difference between the fork and the socket. A self-defined filter function runs in parallel and exacts three rows out of 336,776 that are meeting criteria. As shown, the fork runs 40% faster than the socket.


df <- read.csv("data/nycflights")

ex <- expression(carrier == "UA" & origin == "EWR" & day == 1 & is.na(arr_time))
# SELECT 3 ROWS OUT OF 336,776
#        year month day dep_time dep_delay arr_time arr_delay carrier tailnum flight origin dest air_time ...
# 56866  2013    11   1       NA        NA       NA        NA      UA            252    EWR  IAH       NA ...
# 84148  2013    12   1       NA        NA       NA        NA      UA            643    EWR  ORD       NA ...
# 251405 2013     7   1       NA        NA       NA        NA      UA            394    EWR  ORD       NA ...

parFilter <- function(df, ex, type) {
  cn <- parallel::detectCores() - 1
  cl <- parallel::makeCluster(cn, type = type)
  ### DIVIDE THE DATAFRAME BASED ON # OF CORES
  sp <- parallel::parLapply(cl, parallel::clusterSplit(cl, seq(nrow(df))),
                            function(c_) df[c_,])
  ### PASS THE OBJECT FROM MASTER PROCESS TO EACH NODE
  parallel::clusterExport(cl, "ex")
  ### EXTRACT ROW INDEX ON EACH NODE
  id <- Reduce(c, parallel::parLapply(cl, sp,
                                      function(s_) with(s_, eval(ex))))
  parallel::stopCluster(cl)
  return(df[which(id),])
}

rbenchmark::benchmark(replications = 10, order = "elapsed", relative = "elapsed",
                        columns = c("test", "replications", "elapsed", "relative"),
  "  FORK" = parFilter(df, ex, "FORK"),
  "SOCKET" = parFilter(df, ex, "PSOCK")
)
#     test replications elapsed relative
# 1   FORK           10  59.396    1.000
# 2 SOCKET           10  83.856    1.412

WoE Transformation for Loss Given Default Models

In the intro section of my MOB package (https://github.com/statcompute/MonotonicBinning#introduction), reasons and benefits of using WoE transformations in the context of logistic regressions with binary outcomes had been discussed. What’s more, the similar idea can be easily generalized to other statistical models in the credit risk area, such as LGD (Loss Given Default) models with fractional outcomes.

Measuring the ratio between net and gross charge-offs, LGD can take any value within the unity interval of [0, 1] with no unanimous consensus on the distributional assumption either academically or empirically. In the banking industry, a popular approach to model LGD is the use of Quasi-Binomial models that makes no assumption of any statistical distribution but merely specifies the conditional mean by a Logit link function. With the specification of Logit link, the idea of WoE transformations can be ported directly from logistic regressions to Quasi-Binomial models.

The example below shows how to perform WoE transformations through monotonic binning based upon the fractional outcome, e.g. LGD, by using the function qtl_lgd() (https://github.com/statcompute/MonotonicBinning/blob/master/code/qtl_lgd.R).

	qtl_lgd(df, lgd, ltv)
	#$df
	# bin rule freq dist mv_cnt mean_y woe iv ks
	# 1 01 $X <= 0.2442486803 320 0.1257 0 0.0948 -1.0370 0.0987 9.5173
	# 2 02 $X > 0.2442486803 & $X <= 0.3994659888 318 0.1250 0 0.0994 -0.9850 0.0900 18.6516
	# 3 03 $X > 0.3994659888 & $X <= 0.5314432946 318 0.1250 0 0.1265 -0.7135 0.0515 25.8646
	# 4 04 $X > 0.5314432946 & $X <= 0.6594855396 318 0.1250 0 0.1283 -0.6974 0.0494 32.9504
	# 5 05 $X > 0.6594855396 & $X <= 0.7917383883 318 0.1250 0 0.1769 -0.3182 0.0116 36.5819
	# 6 06 $X > 0.7917383883 & $X <= 0.9243704807 320 0.1257 0 0.2788 0.2683 0.0097 32.9670
	# 7 07 $X > 0.9243704807 & $X <= 1.0800711662 317 0.1246 0 0.4028 0.8251 0.1020 20.6104
	# 8 08 $X > 1.0800711662 316 0.1242 0 0.5204 1.3006 0.2681 0.0000
	# $cuts
	# [1] 0.2442487 0.3994660 0.5314433 0.6594855 0.7917384 0.9243705 1.0800712

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use_qtl_lgd.R

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As demonstrated in the outcome table, the average LGD increases along with the LTV (Loan-to-Value) and the WoE transformation of LTV is strictly linear with respect to the Logit of average LGD.

Faster Way to Slice Dataframe by Row

When we’d like to slice a dataframe by row, we can employ the split() function or the iter() function in the iterators package.

By leveraging the power of parallelism, I wrote an utility function slice() to faster slice the dataframe. In the example shown below, the slice() is 3 times more efficient than the split() or the iter() to select 2 records out of 5,960 rows.


df <- read.csv("hmeq.csv")

nrow(df)
# [1] 5960

slice <- function(df) {
  return(parallel::mcMap(function(i) df[i, ], seq(nrow(df)), mc.cores = parallel::detectCores()))
}

Reduce(rbind, Filter(function(x) x$DEROG == 10, slice(df)))
#     BAD  LOAN MORTDUE VALUE  REASON   JOB YOJ DEROG DELINQ     CLAGE NINQ CLNO  DEBTINC
#3094   1 16800   16204 27781 HomeImp Other   1    10      0 190.57710    0    9 27.14689
#3280   1 17500   76100 98500 DebtCon Other   5    10      1  59.83333    5   16       NA

rbenchmark::benchmark(replications = 10, order = "elapsed", relative = "elapsed",
                        columns = c("test", "replications", "elapsed", "relative"),
  "SPLIT" = Reduce(rbind, Filter(Negate(function(x) x$DEROG != 10), split(df, seq(nrow(df))))),
  "ITER " = Reduce(rbind, Filter(Negate(function(x) x$DEROG != 10), as.list(iterators::iter(df, by = "row")))),
  "SLICE" = Reduce(rbind, Filter(Negate(function(x) x$DEROG != 10), slice(df)))
)
#  test replications elapsed relative
# SLICE           10   2.224    1.000
# SPLIT           10   7.185    3.231
# ITER            10   7.375    3.316

Granular Weighted Binning by Generalized Boosted Model

In the post https://statcompute.wordpress.com/2019/04/27/more-general-weighted-binning, I’ve shown how to do the weighted binning with the function wqtl_bin() by the iterative partitioning. However, the outcome from wqtl_bin() sometimes can be too coarse. The function wgbm_bin() (https://github.com/statcompute/MonotonicBinning/blob/master/code/wgbm_bin.R) leverages the idea of gbm() that implements the Generalized Boosted Model and generates more granular weighted binning outcomes.

Below is the demonstration showing the difference between wqtl_bin() and wgbm_bin() outcomes. Even with the same data, the wgbm_bin() function is able to generate a more granular binning result and 14% higher Information Value.

	df <- readRDS("archive/accepts.rds")

	head(df, 1)
	# bankruptcy bad app_id tot_derog tot_tr age_oldest_tr tot_open_tr tot_rev_tr tot_rev_debt tot_rev_line rev_util bureau_score purch_price msrp
	# 0 0 1001 6 7 46 NaN NaN NaN NaN 0 747 19678 17160
	# down_pyt purpose loan_term loan_amt ltv tot_income used_ind weight
	# 947.15 LEASE 36 18730.85 109 4800 0 4.75

	### BY ITERATIVE PARTITION ###
	source("wqtl_bin.R")
	wqtl_bin(df, bad, tot_open_tr, weight)
	# bin rule cnt freq dist mv_wt bad_freq bad_rate woe iv ks
	# 00 is.na($X) 1416 5398.50 0.2323 5398.5 354 0.0656 0.2573 0.0173 6.7157
	# 01 $X <= 6 2994 12050.25 0.5185 0.0 579 0.0480 -0.0722 0.0026 3.0908
	# 02 $X > 6 1427 5792.00 0.2492 0.0 263 0.0454 -0.1315 0.0041 0.0000

	### BY GENERALIZED BOOSTED MODEL ###
	source("wgbm_bin.R")
	wgbm_bin(df, bad, tot_open_tr, weight)
	# bin rule cnt freq dist mv_wt bad_freq bad_rate woe iv ks
	# 00 is.na($X) 1416 5398.50 0.2323 5398.5 354 0.0656 0.2573 0.0173 6.7157
	# 01 $X <= 2 525 2085.00 0.0897 0.0 109 0.0523 0.0166 0.0000 6.8658
	# 02 $X > 2 & $X <= 3 605 2408.75 0.1036 0.0 124 0.0515 0.0004 0.0000 6.8695
	# 03 $X > 3 & $X <= 5 1319 5342.75 0.2299 0.0 246 0.0460 -0.1169 0.0030 4.3181
	# 04 $X > 5 & $X <= 14 1899 7696.50 0.3312 0.0 353 0.0459 -0.1210 0.0046 0.5213
	# 05 $X > 14 73 309.25 0.0133 0.0 10 0.0323 -0.4846 0.0025 0.0000

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use_wtwoe.R

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wtwoe

Why Use Weight of Evidence?

I had been asked why I spent so much effort on developing SAS macros and R functions to do monotonic binning for the WoE transformation, given the availability of other cutting-edge data mining algorithms that will automatically generate the prediction with whatever predictors fed in the model. Nonetheless, what really distinguishes a good modeler from the rest is how to handle challenging data issues before feeding data in the model, including missing values, outliers, linearity, and predictability, in a scalable way that can be rolled out to hundreds or even thousands of potential model drivers in the production environment.

The WoE transformation through monotonic binning provides a convenient way to address each of aforementioned concerns.

1. Because WoE is a piecewise transformation based on the data discretization, all missing values would fall into a standalone category either by itself or to be combined with the neighbor that shares a similar event probability. As a result, the special treatment for missing values is not necessary.

2. After the monotonic binning of each variable, since the WoE value for each bin is a projection from the predictor into the response that is defined by the log ratio between event and non-event distributions, any raw value of the predictor doesn’t matter anymore and therefore the issue related to outliers would disappear.

3. While many modelers would like to use log or power transformations to achieve a good linear relationship between the predictor and log odds of the response, which is heuristic at best with no guarantee for the good outcome, the WoE transformation is strictly linear with respect to log odds of the response with the unity correlation. It is also worth mentioning that a numeric variable and its strictly monotone functions should converge to the same monotonic WoE transformation.

4. At last, because the WoE is defined as the log ratio between event and non-event distributions, it is indicative of the separation between cases with Y = 0 and cases with Y = 1. As the weighted sum of WoE values with the weight being the difference in event and non-event distributions, the IV (Information Value) is an important statistic commonly used to measure the predictor importance.

Below is a simple example showing how to use WoE transformations in the estimation of a logistic regression.

	df <- readRDS("df.rds")
	### SHOWING THE RESPONSE IN THE LAST COLUMN ###
	head(df, 2)
	#tot_derog tot_tr age_oldest_tr tot_open_tr tot_rev_tr tot_rev_debt tot_rev_line rev_util bureau_score ltv tot_income bad
	# 6 7 46 NaN NaN NaN NaN 0 747 109 4800.00 0
	# 0 21 153 6 1 97 4637 2 744 97 5833.33 0

	source("mob.R")
	bin_out <- batch_bin(df, 3)
	bin_out$BinSum
	# var nbin unique miss min median max ks iv
	# tot_derog 7 29 213 0 0.0 32 20.0442 0.2599
	# tot_tr 15 67 213 0 16.0 77 17.3002 0.1425
	# ……

	top <- paste(bin_out$BinSum[order(bin_out$BinSum[["iv"]], decreasing = T), ][1:6, "var"], sep = '')
	par(mfrow = c(2, 3))
	lapply(top, function(x) plot(bin_out$BinLst[[x]]$df[["woe"]],
	log(bin_out$BinLst[[x]]$df[["bad_rate"]] / (1 – bin_out$BinLst[[x]]$df[["bad_rate"]])),
	type = "b", main = x, cex.main = 2, xlab = paste("woe of", x), ylab = "logit(bad)", cex = 2, col = "red"))

	df_woe <- batch_woe(df, bin_out$BinLst)
	str(df_woe$df)
	#'data.frame': 5837 obs. of 12 variables:
	# $ idx_ : int 1 2 3 4 5 6 7 8 9 10 …
	# $ woe.tot_derog : num 0.656 -0.556 -0.556 0.274 0.274 …
	# $ woe.tot_tr : num 0.407 -0.322 -0.4 -0.322 0.303 …
	# ……

	### PARSE VARIABLES WITH IV > 0.1 ###
	x1 <- paste("woe", bin_out$BinSum[bin_out$BinSum[["iv"]] > 0.1, ]$var, sep = ".")
	# "woe.tot_derog" "woe.tot_tr" "woe.age_oldest_tr" "woe.tot_rev_line" "woe.rev_util" "woe.bureau_score" "woe.ltv"

	fml1 <- as.formula(paste("bad", paste(x1, collapse = " + "), sep = " ~ "))

	sum1 <- summary(glm(fml1, data = cbind(bad = df$bad, df_woe$df), family = "binomial"))

	### PARSE SIGNIFICANT VARIABLES WITH P-VALUE < 0.05 ###
	x2 <- paste(row.names(sum1$coefficients)[sum1$coefficients[, 4] < 0.05][-1])
	# "woe.age_oldest_tr" "woe.tot_rev_line" "woe.rev_util" "woe.bureau_score" "woe.ltv"

	fml2 <- as.formula(paste("bad", paste(x2, collapse = " + "), sep = " ~ "))

	mdl2 <- glm(fml2, data = cbind(bad = df$bad, df_woe$df), family = "binomial")
	# Estimate Std. Error z value Pr(>\|z\|)
	#(Intercept) -1.38600 0.03801 -36.461 < 2e-16 ***
	#woe.age_oldest_tr 0.30376 0.08176 3.715 0.000203 ***
	#woe.tot_rev_line 0.42935 0.06793 6.321 2.61e-10 ***
	#woe.rev_util 0.29150 0.08721 3.342 0.000831 ***
	#woe.bureau_score 0.83568 0.04974 16.803 < 2e-16 ***
	#woe.ltv 0.97789 0.09121 10.721 < 2e-16 ***

	pROC::roc(response = df$bad, predictor = fitted(mdl2))
	# Area under the curve: 0.7751

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use_woe.R

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top6

More General Weighted Binning

You might be wondering what motivates me spending countless weekend hours on the MOB package. The answer is plain and simple. It is users that are driving the development work.

After I published the wts_bin() function last week showing the impact of two-value weights on the monotonic binning outcome (https://statcompute.wordpress.com/2019/04/21/binning-with-weights), a question was asked if I can write a more general weighted binning function with weights being any positive value. The function wqtl_bin() is my answer (https://github.com/statcompute/MonotonicBinning/blob/master/code/wqtl_bin.R).

Below is an example demonstrating how to use the wqtl_bin() function. First of all, let’s apply the function to the case with two-value weights that was illustrated last week. As expected, statistics from both approaches are identical. In the second use case, let’s assume that weights can be any value under the Uniform distribution between 0 and 10. With positive random weights, all statistics have changed.

It is worth mentioning that, while binning rules can be the same with or without weights in some cases, it is not necessarily true in all situations, depending on the distribution of weights across the data sample. As shown in binning outcomes for “ltv” below, there are 7 bins without weights but only 5 with weights.

	wqtl_bin(cbind(df, w = ifelse(df$bad == 1, 1, 5)), bad, tot_derog, w)
	#$df
	# bin rule cnt freq dist mv_wt bad_freq bad_rate woe iv ks
	#1 00 is.na($X) 213 785 0.0322 785 70 0.0892 0.6416 0.0178 2.7716
	#2 01 $X <= 1 3741 16465 0.6748 0 560 0.0340 -0.3811 0.0828 18.9469
	#3 02 $X > 1 & $X <= 2 478 1906 0.0781 0 121 0.0635 0.2740 0.0066 16.5222
	#4 03 $X > 2 & $X <= 4 587 2231 0.0914 0 176 0.0789 0.5078 0.0298 10.6623
	#5 04 $X > 4 818 3014 0.1235 0 269 0.0893 0.6426 0.0685 0.0000
	#$cuts
	#[1] 1 2 4

	wqtl_bin(cbind(df, w = runif(nrow(df), 0, 10)), bad, tot_derog, w)
	#$df
	# bin rule cnt freq dist mv_wt bad_freq bad_rate woe iv ks
	#1 00 is.na($X) 213 952.32 0.0325 952.32 304.89 0.3202 0.5808 0.0128 2.1985
	#2 01 $X <= 1 3741 18773.11 0.6408 0.00 2943.75 0.1568 -0.3484 0.0700 17.8830
	#3 02 $X > 1 & $X <= 2 478 2425.26 0.0828 0.00 604.51 0.2493 0.2312 0.0047 15.8402
	#4 03 $X > 2 & $X <= 4 587 2989.80 0.1021 0.00 882.83 0.2953 0.4639 0.0249 10.4761
	#5 04 $X > 4 818 4156.29 0.1419 0.00 1373.26 0.3304 0.6275 0.0657 0.0000
	#$cuts
	#[1] 1 2 4

	wqtl_bin(cbind(df, w = runif(nrow(df), 0, 10)), bad, ltv, w)
	#$df
	# bin rule cnt freq dist mv_wt bad_freq bad_rate woe iv ks
	#1 01 $X <= 88 1289 6448.76 0.2202 0.00 759.93 0.1178 -0.6341 0.0724 11.4178
	#2 02 $X > 88 & $X <= 98 1351 6695.88 0.2286 0.00 1211.98 0.1810 -0.1306 0.0037 14.2883
	#3 03 $X > 98 & $X <= 104 1126 5662.21 0.1933 0.00 1212.52 0.2141 0.0788 0.0012 12.7295
	#4 04 $X > 104 & $X <= 113 1044 5277.64 0.1802 0.00 1210.91 0.2294 0.1674 0.0053 9.5611
	#5 05 $X > 113 \| is.na($X) 1027 5205.38 0.1777 0.93 1497.29 0.2876 0.4721 0.0451 0.0000

	qtl_bin(df, bad, ltv)
	#$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	#1 01 $X <= 84 956 0.1638 0 102 0.1067 -0.7690 0.0759 9.8728
	#2 02 $X > 84 & $X <= 93 960 0.1645 0 142 0.1479 -0.3951 0.0227 15.6254
	#3 03 $X > 93 & $X <= 99 876 0.1501 0 187 0.2135 0.0518 0.0004 14.8359
	#4 04 $X > 99 & $X <= 103 821 0.1407 0 179 0.2180 0.0787 0.0009 13.7025
	#5 05 $X > 103 & $X <= 109 773 0.1324 0 178 0.2303 0.1492 0.0031 11.6401
	#6 06 $X > 109 & $X <= 117 722 0.1237 0 190 0.2632 0.3263 0.0144 7.2169
	#7 07 $X > 117 \| is.na($X) 729 0.1249 1 218 0.2990 0.5041 0.0364 0.0000

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wqtl_out.R

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Binning with Weights

After working on the MOB package, I received requests from multiple users if I can write a binning function that takes the weighting scheme into consideration. It is a legitimate request from the practical standpoint. For instance, in the development of fraud detection models, we often would sample down non-fraud cases given an extremely low frequency of fraud instances. After the sample down, a weight value > 1 should be assigned to all non-fraud cases to reflect the fraud rate in the pre-sample data.

While accommodating the request for weighting cases is trivial, I’d like to do a simple experitment showing what the impact might be with the consideration of weighting.

– First of all, let’s apply the monotonic binning to a variable named “tot_derog”. In this unweighted binning output, KS = 18.94, IV = 0.21, and WoE values range from -0.38 to 0.64.

– In the first trial, a weight value = 5 is assigned to cases with Y = 0 and a weight value = 1 assigned to cases with Y = 1. As expected, frequency, distribution, bad_frequency, and bad_rate changed. However, KS, IV, and WoE remain identical.

– In the second trial, a weight value = 1 is assigned to cases with Y = 0 and a weight value = 5 assigned to cases with Y = 1. Once again, KS, IV, and WoE are still the same as the unweighted output.

The conclusion from this demonstrate is very clear. In cases of two-value weights assigned to the binary Y, the variable importance reflected by IV / KS and WoE values should remain identical with or without weights. However, if you are concerned about the binning distribution and the bad rate in each bin, the function wts_bin() should do the correction and is available in the project repository (https://github.com/statcompute/MonotonicBinning).

	derog_bin <- qtl_bin(df, bad, tot_derog)

	derog_bin
	#$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 00 is.na($X) 213 0.0365 213 70 0.3286 0.6416 0.0178 2.7716
	# 01 $X <= 1 3741 0.6409 0 560 0.1497 -0.3811 0.0828 18.9469
	# 02 $X > 1 & $X <= 2 478 0.0819 0 121 0.2531 0.2740 0.0066 16.5222
	# 03 $X > 2 & $X <= 4 587 0.1006 0 176 0.2998 0.5078 0.0298 10.6623
	# 04 $X > 4 818 0.1401 0 269 0.3289 0.6426 0.0685 0.0000
	# $cuts
	# [1] 1 2 4

	wts_bin(derog_bin$df, c(1, 5))
	# bin rule wt_freq wt_dist wt_bads wt_badrate wt_woe wt_iv wt_ks
	# 00 is.na($X) 493 0.0464 350 0.7099 0.6416 0.0178 2.7716
	# 01 $X <= 1 5981 0.5631 2800 0.4681 -0.3811 0.0828 18.9469
	# 02 $X > 1 & $X <= 2 962 0.0906 605 0.6289 0.2740 0.0066 16.5222
	# 03 $X > 2 & $X <= 4 1291 0.1216 880 0.6816 0.5078 0.0298 10.6623
	# 04 $X > 4 1894 0.1783 1345 0.7101 0.6426 0.0685 0.0000

	wts_bin(derog_bin$df, c(5, 1))
	# bin rule wt_freq wt_dist wt_bads wt_badrate wt_woe wt_iv wt_ks
	# 00 is.na($X) 785 0.0322 70 0.0892 0.6416 0.0178 2.7716
	# 01 $X <= 1 16465 0.6748 560 0.0340 -0.3811 0.0828 18.9469
	# 02 $X > 1 & $X <= 2 1906 0.0781 121 0.0635 0.2740 0.0066 16.5222
	# 03 $X > 2 & $X <= 4 2231 0.0914 176 0.0789 0.5078 0.0298 10.6623
	# 04 $X > 4 3014 0.1235 269 0.0893 0.6426 0.0685 0.0000

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wts_bin.R

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Batch Deployment of WoE Transformations

After wrapping up the function batch_woe() today with the purpose to allow users to apply WoE transformations to many independent variables simultaneously, I have completed the development of major functions in the MOB package that can be usable for the model development in a production setting.

The function batch_woe() basically is the wrapper around cal_woe() and has two input parameters. The “data” parameter is the data frame that we would deploy binning outcomes and the “slst” parameter is the list of multiple binning specification tables that is either the direct output from the function batch_bin or created manually by combining outputs from multiple binning functions.

There are also two components in the output of batch_woe(), a list of PSI tables for transformed variables and a data frame with a row index and all transformed variables. The default printout is a PSI summation of all input variables to be transformed. As shown below, all PSI values are below 0.1 and therefore none is concerning.

binout <- batch_bin(df, 1)

woeout <- batch_woe(df[sample(seq(nrow(df)), 2000, replace = T), ], binout$BinLst)

woeout 
#     tot_derog tot_tr age_oldest_tr tot_open_tr tot_rev_tr tot_rev_debt ...
# psi    0.0027 0.0044        0.0144      0.0011      3e-04       0.0013 ...

str(woeout, max.level = 1)
# List of 2
#  $ psi:List of 11
#  $ df :'data.frame':	2000 obs. of  12 variables:
#  - attr(*, "class")= chr "psiSummary"

head(woeout$df, 1)
#  idx_ woe.tot_derog woe.tot_tr woe.age_oldest_tr woe.tot_open_tr woe.tot_rev_tr ...
#     1       -0.3811    -0.0215           -0.5356         -0.0722        -0.1012 ...

All source codes of the MOB package are available on https://github.com/statcompute/MonotonicBinning and free (as free beer) to download and distribute.

Batch Processing of Monotonic Binning

In my GitHub repository (https://github.com/statcompute/MonotonicBinning), multiple R functions have been developed to implement the monotonic binning by using either iterative discretization or isotonic regression. With these functions, we can run the monotonic binning for one independent variable at a time. However, in a real-world production environment, we often would want to apply the binning algorithm to hundreds or thousands of variables at once. In addition, we might be interested in comparing different binning outcomes.

The function batch_bin() is designed to apply a monotonic binning function to all numeric variables in a data frame with the last column as the dependent variable. Currently, four binning algorithms are supported, including qtl_bin() and bad_bin() by iterative discretizations, iso_bin() by isotonic regression, and gbm_bin() by generalized boosted model. Before using these four functions, we need to save related R files in the working folder, which would be sourced by the batch_bin() function. Scripts for R functions can be downloaded from https://github.com/statcompute/MonotonicBinning/tree/master/code.

Below is the demonstrating showing how to use the batch_bin() function, which only requires two input parameters, a data frame and an integer number indicating the binning method. With method = 1, the batch_bin() function implements the iterative discretization by quantiles. With method = 4, the batch_bin() function implements the generalized boosted modelling. As shown below, both KS and IV with method = 4 are higher than with method = 1 due to more granular bins. For instance, while the method = 1 only generates 2 bins, the method = 4 can generate 11 bins.

	head(df, 2)
	# tot_derog tot_tr age_oldest_tr tot_open_tr tot_rev_tr tot_rev_debt tot_rev_line rev_util bureau_score ltv tot_income bad
	#1 6 7 46 NaN NaN NaN NaN 0 747 109 4800.00 0
	#2 0 21 153 6 1 97 4637 2 744 97 5833.33 0

	batch_bin(df, 1)
	#\|var \| nbin\| unique\| miss\| min\| median\| max\| ks\| iv\|
	#\|:————–\|—–:\|——-:\|—–:\|—-:\|——–:\|——–:\|——–:\|——-:\|
	#\|tot_derog \| 5\| 29\| 213\| 0\| 0.0\| 32\| 18.9469\| 0.2055\|
	#\|tot_tr \| 5\| 67\| 213\| 0\| 16.0\| 77\| 15.7052\| 0.1302\|
	#\|age_oldest_tr \| 10\| 460\| 216\| 1\| 137.0\| 588\| 19.9821\| 0.2539\|
	#\|tot_open_tr \| 3\| 26\| 1416\| 0\| 5.0\| 26\| 6.7157\| 0.0240\|
	#\|tot_rev_tr \| 3\| 21\| 636\| 0\| 3.0\| 24\| 9.0104\| 0.0717\|
	#\|tot_rev_debt \| 3\| 3880\| 477\| 0\| 3009.5\| 96260\| 8.5102\| 0.0627\|
	#\|tot_rev_line \| 9\| 3617\| 477\| 0\| 10573.0\| 205395\| 26.4924\| 0.4077\|
	#\|rev_util \| 2\| 101\| 0\| 0\| 30.0\| 100\| 15.1570\| 0.0930\|
	#\|bureau_score \| 12\| 315\| 315\| 443\| 692.5\| 848\| 34.8028\| 0.7785\|
	#\|ltv \| 7\| 145\| 1\| 0\| 100.0\| 176\| 15.6254\| 0.1538\|
	#\|tot_income \| 4\| 1639\| 5\| 0\| 3400.0\| 8147167\| 9.1526\| 0.0500\|

	batch_bin(df, 1)$BinLst[["rev_util"]]$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 01 $X <= 31 3007 0.5152 0 472 0.1570 -0.3250 0.0493 15.157
	# 02 $X > 31 2830 0.4848 0 724 0.2558 0.2882 0.0437 0.000

	batch_bin(df, 4)
	#\|var \| nbin\| unique\| miss\| min\| median\| max\| ks\| iv\|
	#\|:————–\|—–:\|——-:\|—–:\|—-:\|——–:\|——–:\|——–:\|——-:\|
	#\|tot_derog \| 8\| 29\| 213\| 0\| 0.0\| 32\| 20.0442\| 0.2556\|
	#\|tot_tr \| 13\| 67\| 213\| 0\| 16.0\| 77\| 17.3002\| 0.1413\|
	#\|age_oldest_tr \| 22\| 460\| 216\| 1\| 137.0\| 588\| 20.3646\| 0.2701\|
	#\|tot_open_tr \| 6\| 26\| 1416\| 0\| 5.0\| 26\| 6.8695\| 0.0274\|
	#\|tot_rev_tr \| 4\| 21\| 636\| 0\| 3.0\| 24\| 9.0779\| 0.0789\|
	#\|tot_rev_debt \| 9\| 3880\| 477\| 0\| 3009.5\| 96260\| 8.8722\| 0.0848\|
	#\|tot_rev_line \| 21\| 3617\| 477\| 0\| 10573.0\| 205395\| 26.8943\| 0.4445\|
	#\|rev_util \| 11\| 101\| 0\| 0\| 30.0\| 100\| 16.9615\| 0.1635\|
	#\|bureau_score \| 30\| 315\| 315\| 443\| 692.5\| 848\| 35.2651\| 0.8344\|
	#\|ltv \| 17\| 145\| 1\| 0\| 100.0\| 176\| 16.8807\| 0.1911\|
	#\|tot_income \| 17\| 1639\| 5\| 0\| 3400.0\| 8147167\| 10.3386\| 0.0775\|

	batch_bin(df, 4)$BinLst[["rev_util"]]$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 01 $X <= 24 2653 0.4545 0 414 0.1560 -0.3320 0.0452 13.6285
	# 02 $X > 24 & $X <= 36 597 0.1023 0 96 0.1608 -0.2963 0.0082 16.3969
	# 03 $X > 36 & $X <= 40 182 0.0312 0 32 0.1758 -0.1890 0.0011 16.9533
	# 04 $X > 40 & $X <= 58 669 0.1146 0 137 0.2048 -0.0007 0.0000 16.9615
	# 05 $X > 58 & $X <= 60 77 0.0132 0 16 0.2078 0.0177 0.0000 16.9381
	# 06 $X > 60 & $X <= 73 442 0.0757 0 103 0.2330 0.1647 0.0022 15.6305
	# 07 $X > 73 & $X <= 75 62 0.0106 0 16 0.2581 0.2999 0.0010 15.2839
	# 08 $X > 75 & $X <= 83 246 0.0421 0 70 0.2846 0.4340 0.0089 13.2233
	# 09 $X > 83 & $X <= 96 376 0.0644 0 116 0.3085 0.5489 0.0225 9.1266
	# 10 $X > 96 & $X <= 98 50 0.0086 0 17 0.3400 0.6927 0.0049 8.4162
	# 11 $X > 98 483 0.0827 0 179 0.3706 0.8263 0.0695 0.0000

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use_BatchBin.R

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Monotonic Binning with GBM

In addition to monotonic binning algorithms introduced in my previous post (https://statcompute.wordpress.com/2019/03/10/a-summary-of-my-home-brew-binning-algorithms-for-scorecard-development), two more functions based on Generalized Boosted Regression Models have been added to my GitHub repository, gbm_bin() and gbmcv_bin().

The function gbm_bin() estimates a GBM model without the cross validation and tends to generate a more granular binning outcome.

	gbm_bin(df, bad, tot_derog)
	# $df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 00 is.na($X) 213 0.0365 213 70 0.3286 0.6416 0.0178 2.7716
	# 01 $X <= 1 3741 0.6409 0 560 0.1497 -0.3811 0.0828 18.9469
	# 02 $X > 1 & $X <= 2 478 0.0819 0 121 0.2531 0.2740 0.0066 16.5222
	# 03 $X > 2 & $X <= 3 332 0.0569 0 86 0.2590 0.3050 0.0058 14.6321
	# 04 $X > 3 & $X <= 9 848 0.1453 0 282 0.3325 0.6593 0.0750 3.2492
	# 05 $X > 9 225 0.0385 0 77 0.3422 0.7025 0.0228 0.0000
	# $cuts
	# [1] 1 2 3 9

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gbm_bin

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The function gbmcv_bin() estimates a GBM model with the cross validation (CV). Therefore, it would generate a more stable but coarse binning outcome. Nonetheless, the computation is more expensive due to CV, especially for large datasets.

	gbmcv_bin(df, bad, tot_derog)
	### OUTPUT ###
	# $df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 00 is.na($X) 213 0.0365 213 70 0.3286 0.6416 0.0178 2.7716
	# 01 $X <= 1 3741 0.6409 0 560 0.1497 -0.3811 0.0828 18.9469
	# 02 $X > 1 & $X <= 2 478 0.0819 0 121 0.2531 0.2740 0.0066 16.5222
	# 03 $X > 2 1405 0.2407 0 445 0.3167 0.5871 0.0970 0.0000
	# $cuts
	# [1] 1 2

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gbmcv_bin

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Motivated by the idea of my friend Talbot (https://www.linkedin.com/in/talbot-katz-b76785), I also drafted a function pava_bin() based upon the Pool Adjacent Violators Algorithm (PAVA) and compared it with the iso_bin() function based on the isotonic regression. As shown in the comparison below, there is no difference in the binning outcome. However, the computing cost of pava_bin() function is higher given that PAVA is an iterative algorithm solving for the monotonicity.

	pava_bin(df, bad, tot_derog)$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 00 is.na($X) 213 0.0365 213 70 0.3286 0.6416 0.0178 2.7716
	# 01 $X <= 1 3741 0.6409 0 560 0.1497 -0.3811 0.0828 18.9469
	# 02 $X > 1 & $X <= 2 478 0.0819 0 121 0.2531 0.2740 0.0066 16.5222
	# 03 $X > 2 & $X <= 3 332 0.0569 0 86 0.2590 0.3050 0.0058 14.6321
	# 04 $X > 3 & $X <= 23 1064 0.1823 0 353 0.3318 0.6557 0.0931 0.4370
	# 05 $X > 23 9 0.0015 0 6 0.6667 2.0491 0.0090 0.0000

	iso_bin(df, bad, tot_derog)$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 00 is.na($X) 213 0.0365 213 70 0.3286 0.6416 0.0178 2.7716
	# 01 $X <= 1 3741 0.6409 0 560 0.1497 -0.3811 0.0828 18.9469
	# 02 $X > 1 & $X <= 2 478 0.0819 0 121 0.2531 0.2740 0.0066 16.5222
	# 03 $X > 2 & $X <= 3 332 0.0569 0 86 0.2590 0.3050 0.0058 14.6321
	# 04 $X > 3 & $X <= 23 1064 0.1823 0 353 0.3318 0.6557 0.0931 0.4370
	# 05 $X > 23 9 0.0015 0 6 0.6667 2.0491 0.0090 0.0000

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pava_compare

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Deployment of Binning Outcomes in Production

In my previous post (https://statcompute.wordpress.com/2019/03/10/a-summary-of-my-home-brew-binning-algorithms-for-scorecard-development), I’ve shown different monotonic binning algorithm that I developed over time. However, these binning functions are all useless without a deployment vehicle in production. During the weekend, I finally had time to draft a R function
(https://github.com/statcompute/MonotonicBinning/blob/master/code/calc_woe.R) that can be used to deploy the binning outcome and to apply the WoE transformation to the attribute from an input data frame.

Below is a complete example showing how to apply the binning function mono_bin() to an attribute named “ltv” in the data frame, generate the binning specification, and then deploy the binning logic to calculate the WoE transformation of “ltv”. There are two objects returned from the calc_woe.R() function, the original data frame with an new column named “woe.ltv” and a summary table showing the population stability index (PSI) of the input attribute “ltv”.

While all are welcome to use my R codes and functions for your own purposes, I greatly appreciate it if you could reference the work and acknowledge my efforts.

	url <- "https://github.com/statcompute/MonotonicBinning/blob/master/data/accepts.rds?raw=true"
	download.file(url, "df.rds", mode = "wb")
	df <- readRDS("df.rds")

	source("https://raw.githubusercontent.com/statcompute/MonotonicBinning/master/code/manual_bin.R")
	source("https://raw.githubusercontent.com/statcompute/MonotonicBinning/master/code/mono_bin.R")
	ltv_bin <- mono_bin(df, bad, ltv)
	ltv_bin$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 1 01 $X <= 86 1108 0.1898 0 122 0.1101 -0.7337 0.0810 11.0448
	# 2 02 $X > 86 & $X <= 95 1081 0.1852 0 166 0.1536 -0.3510 0.0205 16.8807
	# 3 03 $X > 95 & $X <= 101 1102 0.1888 0 242 0.2196 0.0880 0.0015 15.1771
	# 4 04 $X > 101 & $X <= 106 743 0.1273 0 177 0.2382 0.1935 0.0050 12.5734
	# 5 05 $X > 106 & $X <= 115 935 0.1602 0 226 0.2417 0.2126 0.0077 8.9540
	# 6 06 $X > 115 \| is.na($X) 868 0.1487 1 263 0.3030 0.5229 0.0468 0.0000

	source("https://raw.githubusercontent.com/statcompute/MonotonicBinning/master/code/calc_woe.R")
	ltv_woe <- calc_woe(df[sample(seq(nrow(df)), 1000), ], ltv, ltv_bin$df)
	ltv_woe$psi
	# bin rule dist woe cal_freq cal_dist cal_woe psi
	# 1 01 $X <= 86 0.1898 -0.7337 188 0.188 -0.7337 0e+00
	# 2 02 $X > 86 & $X <= 95 0.1852 -0.3510 179 0.179 -0.3510 2e-04
	# 3 03 $X > 95 & $X <= 101 0.1888 0.0880 192 0.192 0.0880 1e-04
	# 4 04 $X > 101 & $X <= 106 0.1273 0.1935 129 0.129 0.1935 0e+00
	# 5 05 $X > 106 & $X <= 115 0.1602 0.2126 167 0.167 0.2126 3e-04
	# 6 06 $X > 115 \| is.na($X) 0.1487 0.5229 145 0.145 0.5229 1e-04
	head(ltv_woe$df[, c("ltv", "woe.ltv")])
	# ltv woe.ltv
	# 2378 74 -0.7337
	# 1897 60 -0.7337
	# 2551 80 -0.7337
	# 2996 83 -0.7337
	# 1174 85 -0.7337
	# 2073 74 -0.7337

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woe_deploy.R

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A Summary of My Home-Brew Binning Algorithms for Scorecard Development

Thus far, I have published four different monotonic binning algorithms for the scorecard development and think that it might be a right timing to do a quick summary. R functions for these binning algorithms are also available on https://github.com/statcompute/MonotonicBinning.

The first one was posted back in 2017 (https://statcompute.wordpress.com/2017/01/22/monotonic-binning-with-smbinning-package) based on my SAS macro (https://statcompute.wordpress.com/2012/06/10/a-sas-macro-implementing-monotonic-woe-transformation-in-scorecard-development) that has been widely used by sasORs. This R function mono_bin() is designed to generate monotonic bins with roughly equal densities, e.g. size of records in each bin. There are two potential issues for this binning algorithm. Albeit robust, the binning outcome is too coarse and and therefore might not be granular enough to capture the data nature. In addition, although the algorithm is fully automatic and able to converge globally, it requires iterations that might be computationally expensive for big datasets.

In light of aforementioned shortcomings, I developed the second one based on the isotonic regression (https://statcompute.wordpress.com/2017/06/15/finer-monotonic-binning-based-on-isotonic-regression and https://statcompute.wordpress.com/2018/11/23/more-robust-monotonic-binning-based-on-isotonic-regression) that successfully addresses both the coarse binning and iterations.

The third one was developed last year just out of my own curiosity (https://statcompute.wordpress.com/2018/10/14/monotonic-binning-with-equal-sized-bads-for-scorecard-development) for the purpose to generate monotonic bins with roughly equal-sized bads, e.g. Y = 1. From the performance standpoint, this one is not materially different from the first one. It is more like a brainteaser for myself.

The last one (https://statcompute.wordpress.com/2018/11/25/improving-binning-by-bootstrap-bumping) was mainly motivated by the idea of Bootstrap Bumping from Tibshirani and Knight (1997) and implements the bumping on top of the second one above based on the isotonic regression. The outcome of this one is satisfactory in two folds. First of all, since the bumping is based on bootstrap samples drawn from the original dataset, the concern about over-fitting due to the sample bias can be somewhat addressed. Secondly, through the bumping search across all bootstrap samples, chances are that a closer-to-optimal solution can be achieved.

R functions for all 4 binning algorithms on the GitHub are built on top of an utility function manual_bin() (https://github.com/statcompute/MonotonicBinning/blob/master/code/manual_bin.R). In the R code, I tried my best to make it as generic as possible without importing additional packages. The only exception is that the parallel package is used in the bump_bin() function to speed up the computation. My next task might be writing a scoring function to make these binning algorithms useful in production.

Bayesian Optimization for Hyper-Parameter

In past several weeks, I spent a tremendous amount of time on reading literature about automatic parameter tuning in the context of Machine Learning (ML), most of which can be classified into two major categories, e.g. search and optimization. Searching mechanisms, such as grid search, random search, and Sobol sequence, can be somewhat computationally expensive. However, they are extremely easy to implement and parallelize on a multi-core PC, as shown in https://statcompute.wordpress.com/2019/02/03/sobol-sequence-vs-uniform-random-in-hyper-parameter-optimization. On the other hand, optimization algorithms, especially gradient-free optimizers such as Nelder–Mead simplex and particle swarm, are often able to quickly locate close-to-optimal solutions in cases that the global optimal is neither feasible nor necessary, as shown in https://statcompute.wordpress.com/2019/02/10/direct-optimization-of-hyper-parameter and https://statcompute.wordpress.com/2019/02/23/gradient-free-optimization-for-glmnet-parameters.

In the example below, another interesting approach, namely Bayesian optimization (https://arxiv.org/abs/1206.2944), is demonstrated and compared with CMA-ES (https://www.researchgate.net/publication/227050324_The_CMA_Evolution_Strategy_A_Comparing_Review), which is also a popular gradient-free optimizer based on the evolution strategy. As shown in the result, the output from Bayesian optimization is closer to the one from Nelder–Mead simplex and particle swarm. What’s more, Bayesian optimization is more consistent than CMA-ES among multiple trials in the experiment.

	cma_out <- cmaes::cma_es(
	par = 0.5,
	fn = function(x) grnn.optim(x, net, 4, 2019),
	lower = 0.1, upper = 1,
	control = list(fnscale = -1, mu = 20, lambda = 50))
	#$par
	#[1] 0.5766267
	#$value
	#[1] 0.8018076

	bay_out <- rBayesianOptimization::BayesianOptimization(
	FUN = function(x) list(Score = grnn.optim(x, net, 4, 2019), Pred = 0),
	bounds = list(x = c(0.1, 1)),
	init_points = 5, n_iter = 20,
	acq = "ucb", verbose = F)
	# Best Parameters Found:
	#Round = 20 x = 0.5583 Value = 0.8019

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BayesianOptimization_GRNN.R

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Gradient-Free Optimization for GLMNET Parameters

In the post https://statcompute.wordpress.com/2017/09/03/variable-selection-with-elastic-net, it was shown how to optimize hyper-parameters, namely alpha and gamma, of the glmnet by using the built-in cv.glmnet() function. However, following a similar logic of hyper-parameter optimization shown in the post https://statcompute.wordpress.com/2019/02/10/direct-optimization-of-hyper-parameter, we can directly optimize alpha and gamma parameters of the glmnet by using gradient-free optimizations, such as Nelder–Mead simplex or particle swarm. Different from traditional gradient-based optimizations, gradient-free optimizations are often able to find close-to-optimal solutions that are considered “good enough” from an empirical standpoint in many cases that can’t be solved by gradient-based approaches due to noisy and discontinuous functions.

It is very straight-forward to set up the optimization work-flow. All we need to do is writing an objective function, e.g. to maximize the AUC statistic in this specific case, and then maximizing this objective function by calling the optimizer. In the demonstration below, Nelder–Mead simplex and particle swarm optimizers are employed to maximize the AUC statistic defined in the glmnet.optim() function based on a 10-fold cross validation. As shown in the result, both approaches gave very similar outcomes. For whoever interested, please feel free to compare the demonstrated method with the cv.glmnet() function.

	### gradient-free optimization for glmnet parameters ###

	df1 <- read.csv("Downloads/credit_count.txt")
	df2 <- df1[df1$CARDHLDR == 1, ]
	X <- scale(df2[setdiff(colnames(df2), c("CARDHLDR", "DEFAULT"))])
	Y <- as.factor(as.matrix(df2["DEFAULT"]))

	set.seed(2019)
	sample <- sample(seq(nrow(df2)), size = nrow(df2) / 2, replace = FALSE)
	### TRAINING SET ###
	Y1 <- Y[sample]
	X1 <- X[sample,]
	### VALIDATION SET ###
	Y2 <- Y[-sample]
	X2 <- X[-sample,]

	### OBJECTIVE FUNCTION TO MAXIMIZE AUC BY N-FOLD VALIDATION ###
	glmnet.optim <- function(x) {
	nfolds <- 10
	set.seed(1)
	folds <- caret::createFolds(1:length(Y1), k = nfolds, list = FALSE)
	glmnet.cv <- function(i) {
	mdl <- glmnet::glmnet(X1[folds != i, ], Y1[folds != i], family = "binomial", standardize = FALSE,
	alpha = x[1], lambda = x[2])
	data.frame(Ya = Y1[folds == i], Yp = as.numeric(predict(mdl, X1[folds == i, ], type = "response")))
	}
	p <- do.call(rbind, parallel::mcMap(glmnet.cv, 1:nfolds, mc.cores = parallel::detectCores() – 1))
	r <- pROC::roc(p$Ya, p$Yp)
	return(r$auc[1])
	}

	### NELDER-MEAD OPTIMIZATION ###
	nm_out <- dfoptim::nmkb(par = c(0.1, 0.01), fn = function(x) glmnet.optim(x),
	upper = c(1, 100), lower = c(0, 0),
	control = list(tol = 1e-10, maximize = T))

	nm_mdl <- glmnet::glmnet(X1, Y1, family = "binomial", alpha = nm_out$par[1], lambda = nm_out$par[2])

	coef(nm_mdl)
	#(Intercept) -2.36444757
	#AGE .
	#ACADMOS .
	#ADEPCNT .
	#MAJORDRG 0.03489905
	#MINORDRG 0.12017363
	#OWNRENT -0.10940849
	#INCOME -0.29822461
	#SELFEMPL .
	#INCPER -0.09279876
	#EXP_INC .
	#SPENDING .
	#LOGSPEND -0.18790225

	pROC::roc(Y1, as.numeric(predict(nm_mdl, X1, type = "response")))
	# Area under the curve: 0.6529

	pROC::roc(Y2, as.numeric(predict(nm_mdl, X2, type = "response")))
	# Area under the curve: 0.6592


	### PARTICLE SWARM OPTIMIZATION ###
	ps_out <- pso::psoptim(par = c(0.1, 0.01), upper = c(1, 100), lower = c(0, 0),
	fn = function(x) -glmnet.optim(x),
	control = list(maxit = 50, s = 10))

	ps_mdl <- glmnet::glmnet(X1, Y1, family = "binomial", alpha = ps_out$par[1], lambda = ps_out$par[2])

	coef(ps_mdl)
	#(Intercept) -2.36448859
	#AGE .
	#ACADMOS .
	#ADEPCNT .
	#MAJORDRG 0.03556278
	#MINORDRG 0.12033092
	#OWNRENT -0.11008422
	#INCOME -0.29728683
	#SELFEMPL .
	#INCPER -0.09367351
	#EXP_INC .
	#SPENDING .
	#LOGSPEND -0.18814776

	pROC::roc(Y1, as.numeric(predict(ps_mdl, X1, type = "response")))
	# Area under the curve: 0.6529

	pROC::roc(Y2, as.numeric(predict(ps_mdl, X2, type = "response")))
	# Area under the curve: 0.6592

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glmnet_optim.R

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Direct Optimization of Hyper-Parameter

In the previous post (https://statcompute.wordpress.com/2019/02/03/sobol-sequence-vs-uniform-random-in-hyper-parameter-optimization), it is shown how to identify the optimal hyper-parameter in a General Regression Neural Network by using the Sobol sequence and the uniform random generator respectively through the N-fold cross validation. While the Sobol sequence yields a slightly better performance, outcomes from both approaches are very similar, as shown below based upon five trials with 20 samples in each. Both approaches can be generalized from one-dimensional to multi-dimensional domains, e.g. boosting or deep learning.

net <- grnn.fit(scale(Boston[, -14]), Boston[, 14], sigma = 1)
                        
sb_out <- Reduce(rbind, Map(function(x) grnn.cv(net, gen_sobol(0.1, 1.0, 20, x), 4, 2019), seq(1, 5)))

uf_out <- Reduce(rbind, Map(function(x) grnn.cv(net, gen_unifm(0.1, 1.0, 20, x), 4, 2019), seq(1, 5)))

Map(function(x) x[x$R2 == max(x$R2), ], list(sobol = sb_out, uniform = uf_out))
# $sobol
#  sigma        R2
# 0.5568 0.8019342
# $uniform
#  sigma        R2
# 0.5608 0.8019327

Other than the random search, another way to locate the optimal hyper-parameter is applying general optimization routines, As shown in the demonstration below, we first need to define an objective function, e.g. grnn.optim(), to maximize the Cross-Validation R^2. In addition, depending on the optimization algorithm, upper and lower bounds of the parameter to be optimized should also be provided. Three optimization algorithms are employed in the example, including unconstrained non-linear optimization, particle swarm optimization, and Nelder–Mead simplex optimization, with all showing comparable outcomes to ones achieved by the random search.

	net <- grnn.fit(scale(Boston[, -14]), Boston[, 14], sigma = 1)

	grnn.optim <- function(sigma, nn, nfolds, seed) {
	dt <- nn$set
	set.seed(seed)
	folds <- caret::createFolds(1:nrow(dt), k = nfolds, list = FALSE)
	r <- do.call(rbind,
	lapply(1:nfolds,
	function(i) data.frame(Ya = nn$Ya[folds == i],
	Yp = grnn.predict(grnn.fit(nn$Xa[folds != i, ], nn$Ya[folds != i], sigma),
	data.frame(nn$Xa[folds == i,])))))
	return(r2(r$Ya, r$Yp))
	}

	### General-Purpose Unconstrained Non-Linear Optimization ###
	op_out <- ucminf::ucminf(par = 0.5, fn = function(x) -grnn.optim(x, net, 4, 2019))
	# $par
	# [1] 0.5611872
	# $value
	# [1] -0.8019319

	### Particle Swarm Optimization ###
	set.seed(1)
	ps_out <- pso::psoptim(par = 0.5, upper = 1.0, lower = 0.1,
	fn = function(x) -grnn.optim(x, net, 4, 2019),
	control = list(maxit = 20))
	# $par
	# [1] 0.5583358
	# $value
	# [1] -0.8019351

	### Nelder–Mead Optimization ###
	nm_out <- optim(par = 0.5, fn = function(x) -grnn.optim(x, net, 4, 2019),
	method = "Nelder-Mead", control = list(warn.1d.NelderMead = FALSE))
	# $par
	# [1] 0.5582031
	# $value
	# [1] -0.8019351

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grnn_optim.R

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Sobol Sequence vs. Uniform Random in Hyper-Parameter Optimization

Tuning hyper-parameters might be the most tedious yet crucial in various machine learning algorithms, such as neural networks, svm, or boosting. The configuration of hyper-parameters not only impacts the computational efficiency of a learning algorithm but also determines its prediction accuracy.

Thus far, manual tuning and grid searching are still the most prevailing strategies. In the paper http://www.jmlr.org/papers/volume13/bergstra12a/bergstra12a.pdf, Bergstra and Bengio showed that the random search is more efficient in the hyper-parameter optimization than both the grid search and the manual tuning. Following the similar logic of the random search, a Sobol sequence is a series of quasi-random numbers designed to cover the space more evenly than uniform random numbers.

The demonstration below compared the Sobol sequence and the uniform random number generator in the hyper-parameter tuning of a General Regression Neural Network (GRNN). In this particular example, the Sobol sequence outperforms the uniform random number generator in two folds. First of all, it picks the hyper-parameter that yields a better performance, e.g. R^2, in the cross-validation. Secondly, the performance is more consistent in multiple trials with a lower variance.

	data(Boston, package = "MASS")

	grnn.fit <- function(x, y, sigma) {
	return(grnn::smooth(grnn::learn(data.frame(y, x)), sigma))
	}

	grnn.predict <- function(nn, x) {
	c <- parallel::detectCores() – 1
	return(do.call(rbind,
	parallel::mcMap(function(i) grnn::guess(nn, as.matrix(x[i, ])),
	1:nrow(x), mc.cores = c))[,1])
	}

	r2 <- function(act, pre) {
	rss <- sum((pre – act) ^ 2)
	tss <- sum((act – mean(act)) ^ 2)
	return(1 – rss / tss)
	}

	grnn.cv <- function(nn, sigmas, nfolds, seed) {
	dt <- nn$set
	set.seed(seed)
	folds <- caret::createFolds(1:nrow(dt), k = nfolds, list = FALSE)
	cv <- function(s) {
	r <- do.call(rbind,
	lapply(1:nfolds,
	function(i) data.frame(Ya = nn$Ya[folds == i],
	Yp = grnn.predict(grnn.fit(nn$Xa[folds != i, ], nn$Ya[folds != i], s),
	data.frame(nn$Xa[folds == i,])))))
	return(data.frame(sigma = s, R2 = r2(r$Ya, r$Yp)))
	}
	r2_lst <- Reduce(rbind, Map(cv, sigmas))
	return(r2_lst[r2_lst$R2 == max(r2_lst$R2), ])
	}

	gen_sobol <- function(min, max, n, seed) {
	return(round(min + (max – min) * randtoolbox::sobol(n, dim = 1, scrambling = 1, seed = seed), 4))
	}

	gen_unifm <- function(min, max, n, seed) {
	set.seed(seed)
	return(round(min + (max – min) * runif(n), 4))
	}

	net <- grnn.fit(Boston[, -14], Boston[, 14], sigma = 2)

	sobol_out <- Reduce(rbind, Map(function(x) grnn.cv(net, gen_sobol(5, 10, 10, x), 4, 2019), seq(1, 10)))

	unifm_out <- Reduce(rbind, Map(function(x) grnn.cv(net, gen_unifm(5, 10, 10, x), 4, 2019), seq(1, 10)))

	out <- rbind(cbind(type = rep("sobol", 10), sobol_out),
	cbind(type = rep("unifm", 10), unifm_out))

	boxplot(R2 ~ type, data = out, main = "Sobol Sequence vs. Uniform Random",
	ylab = "CV RSquare", xlab = "Sequence Type")

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sobol_grnn.R

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Screenshot from 2019-02-03 19-50-42

Co-integration and Mean Reverting Portfolio

In the previous post https://statcompute.wordpress.com/2018/07/29/co-integration-and-pairs-trading, it was shown how to identify two co-integrated stocks in the pair trade. In the example below, I will show how to form a mean reverting portfolio with three or more stocks, e.g. stocks with co-integration, and also how to find the linear combination that is stationary for these stocks.

First of all, we downloaded series of three stock prices from finance.yahoo.com.

### GET DATA FROM YAHOO FINANCE
quantmod::getSymbols("FITB", from = "2010-01-01")
FITB <- get("FITB")[, 6]
quantmod::getSymbols("MTB", from = "2010-01-01")
MTB <- get("MTB")[, 6]
quantmod::getSymbols("BAC", from = "2010-01-01")
BAC <- get("BAC")[, 6]

For the residual-based co-integration test, we can utilize the Pu statistic in the Phillips-Ouliaris test to identify the co-integration among three stocks. As shown below, the null hypothesis of no co-integration is rejected, indicating that these three stocks are co-integrated and therefore form a mean reverting portfolio. Also, the test regression to derive the residual for the statistical test is also given.

k <- trunc(4 + (length(FITB) / 100) ^ 0.25)
po.test <- urca::ca.po(cbind(FITB, MTB, BAC), demean = "constant", lag = "short", type = "Pu")
#Value of test-statistic is: 62.7037
#Critical values of Pu are:
#                  10pct    5pct    1pct
#critical values 33.6955 40.5252 53.8731

po.test@testreg
#                     Estimate Std. Error t value Pr(|t|)
#(Intercept)         -1.097465   0.068588  -16.00   <2e-16 ***
#z[, -1]MTB.Adjusted  0.152637   0.001487  102.64   <2e-16 ***
#z[, -1]BAC.Adjusted  0.140457   0.007930   17.71   <2e-16 ***

Based on the test regression output, a linear combination can be derived by [FITB + 1.097465 – 0.152637 * MTB – 0.140457 * BAC]. The ADF test result confirms that the linear combination of these three stocks are indeed stationary.

ts1 <- FITB + 1.097465 - 0.152637 * MTB - 0.140457 * BAC
tseries::adf.test(ts1, k = k)
#Dickey-Fuller = -4.1695, Lag order = 6, p-value = 0.01

Alternatively, we can also utilize the Johansen test that is based upon the likelihood ratio to identify the co-integration. While the null hypothesis of no co-integration (r = 0) is rejected, the null hypothesis of r <= 1 suggests that there exists a co-integration equation at the 5% significance level.

js.test <- urca::ca.jo(cbind(FITB, MTB, BAC), type = "trace", K = k, spec = "longrun", ecdet = "const")
#          test 10pct  5pct  1pct
#r <= 2 |  3.26  7.52  9.24 12.97
#r <= 1 | 19.72 17.85 19.96 24.60
#r = 0  | 45.88 32.00 34.91 41.07

js.test@V
#                 FITB.Adjusted.l6 MTB.Adjusted.l6 BAC.Adjusted.l6   constant
#FITB.Adjusted.l6        1.0000000        1.000000        1.000000  1.0000000
#MTB.Adjusted.l6        -0.1398349       -0.542546       -0.522351 -0.1380191
#BAC.Adjusted.l6        -0.1916826        1.548169        3.174651 -0.9654671
#constant                0.6216917       17.844653      -20.329085  6.8713179

Similarly, based on the above Eigenvectors, a linear combination can be derived by [FITB + 0.6216917 – 0.1398349 * MTB – 0.1916826 * BAC]. The ADF test result also confirms that the linear combination of these three stocks are stationary.

ts2 <- FITB + 0.6216917 - 0.1398349 * MTB - 0.1916826 * BAC
tseries::adf.test(ts2, k = k)
#Dickey-Fuller = -4.0555, Lag order = 6, p-value = 0.01

Statistical Assessments of AUC

In the scorecard development, the area under ROC curve, also known as AUC, has been widely used to measure the performance of a risk scorecard. Given everything else equal, the scorecard with a higher AUC is considered more predictive than the one with a lower AUC. However, little attention has been paid to the statistical analysis of AUC itself during the scorecard development.

While it might be less of a concern to rely on a simple comparison of AUC for the model selection in the development stage and then to pick the scorecard with a higher AUC, more attention should be called for on AUC analysis in the post-development stage. For instance, the senior management would need to decide whether it is worthy to retire a legacy scorecard that might be still performing and to launch the full-scale deployment of a new scorecard just for an increase in AUC that might not even be statistically significant. While the claim of certain business benefits can always be used as an argument in favor of the new scorecard, the justification would become even more compelling with a solid statistical evidence. What’s more, the model validation analyst might also want to leverage the outcome of AUC analysis to ensure the statistical soundness of new scorecards.

In the example below, two logistic regressions were estimated with AUC = 0.6554 and BIC = 6,402 for the model with 6 variables and AUC = 0.6429 and BIC = 6,421 for the model with 3 variables.

df1 <- read.csv("Downloads/credit_count.txt")
df2 <- df1[which(df1$CARDHLDR == 1), ]
y <- "DEFAULT"
x1 <- c("OWNRENT", "INCOME", "INCPER", "LOGSPEND", "AGE", "EXP_INC")
x2 <- c("MAJORDRG", "MINORDRG", "INCOME")

m1 <- glm(eval(paste(y, paste(x1, collapse = " + "), sep = " ~ ")), data = df2, family = binomial)
#              Estimate Std. Error z value Pr(|z|)
#(Intercept) -1.749e-01  1.659e-01  -1.054 0.291683
#OWNRENT     -2.179e-01  7.686e-02  -2.835 0.004581 **
#INCOME      -2.424e-04  4.364e-05  -5.554 2.79e-08 ***
#INCPER      -1.291e-05  3.318e-06  -3.890 0.000100 ***
#LOGSPEND    -2.165e-01  2.848e-02  -7.601 2.95e-14 ***
#AGE         -8.330e-03  3.774e-03  -2.207 0.027312 *
#EXP_INC      1.340e+00  3.467e-01   3.865 0.000111 ***

BIC(m1)
# 6401.586

roc1 <- pROC::roc(response = df2$DEFAULT, predictor = fitted(m1))
# Area under the curve: 0.6554

m2 <- glm(eval(paste(y, paste(x2, collapse = " + "), sep = " ~ ")), data = df2, family = binomial)
#              Estimate Std. Error z value Pr(|z|)
#(Intercept) -1.222e+00  9.076e-02 -13.459  < 2e-16 ***
#MAJORDRG     2.031e-01  6.921e-02   2.934  0.00335 **
#MINORDRG     1.920e-01  4.784e-02   4.013 5.99e-05 ***
#INCOME      -4.706e-04  3.919e-05 -12.007  < 2e-16 ***

BIC(m2)
# 6421.232

roc2 <- pROC::roc(response = df2$DEFAULT, predictor = fitted(m2))
# Area under the curve: 0.6429

Both AUC and BIC statistics seemed to favor the first model. However, is a 2% difference in AUC significant enough to infer a better model? Under the Null Hypothesis of no difference in AUC, three statistical tests were employed to assess the difference in AUC / ROC between two models.

set.seed(2019)
# REFERENCE:
# A METHOD OF COMPARING THE AREAS UNDER RECEIVER OPERATING CHARACTERISTIC CURVES DERIVED FROM THE SAME CASES
# HANLEY JA, MCNEIL BJ (1983)
pROC::roc.test(roc1, roc2, method = "bootstrap", boot.n = 500, progress = "none", paired = T)
# D = 1.7164, boot.n = 500, boot.stratified = 1, p-value = 0.0861

# REFERENCE:
# COMPARING THE AREAS UNDER TWO OR MORE CORRELATED RECEIVER OPERATING CHARACTERISTIC CURVES: A NONPARAMETRIC APPROACH
# DELONG ER, DELONG DM, CLARKE-PEARSON DL (1988)
pROC::roc.test(roc1, roc2, method = "delong", paired = T)
# Z = 1.7713, p-value = 0.0765

# REFERENCE
# A DISTRIBUTION-FREE PROCEDURE FOR COMPARING RECEIVER OPERATING CHARACTERISTIC CURVES FROM A PAIRED EXPERIMENT
# VENKATRAMAN ES, BEGG CB (1996)
pROC::roc.test(roc1, roc2, method = "venkatraman", boot.n = 500, progress = "none", paired = T)
# E = 277560, boot.n = 500, p-value = 0.074

Based upon the above output, there is no strong statistical evidence against the Null Hypothesis.

pscl::vuong(m1, m2)
#              Vuong z-statistic             H_A  p-value
#Raw                   2.0963830 model1 > model2 0.018024
#AIC-corrected         1.8311449 model1 > model2 0.033539
#BIC-corrected         0.8684585 model1 > model2 0.192572

In addition, a Vuong test is also performed, supporting no difference between two models after corrected for the Schwarz penalty.

Phillips-Ouliaris Test For Cointegration

In a project of developing PPNR balance projection models, I tried to use the Phillips-Ouliaris (PO) test to investigate the cointegration between the historical balance and a set of macro-economic variables and noticed that implementation routines of PO test in various R packages, e.g. urca and tseries, would give different results. After reading through the original paper “Asymptotic Properties of Residual Based Tests for Co-Integration” by P. Phillips again, I started realizing that the po.test() function in the tseries package and the ca.po() function in the urca package are implementing different types of Phillips-Ouliaris cointegration tests. In other words, the so-called “Phillips-Ouliaris Cointegration test” is not A statistical test but a set of statistical tests with different assumptions, formulations, critical values, and implications.

Let’s start with simulating cointegrated series, as below.

set.seed(2019)
x <- cumsum(rnorm(200, sd = 0.5)) 
y <- cumsum(rnorm(200, sd = 0.5)) + 1
z <- x + y + rnorm(200, sd = 0.5)

First of all, the po.test() function from the tseries package is applied to simulated series with following observations:
1. As the position of each series is changed in the po.test() function, we will get different testing results.
2. Results are determined by which series on the most left-hand side.

The reason is that the po.test() function is testing the cointegration with Phillip’s Z_alpha test, which is the second residual-based test described in P171 of the paper. For this test, critical values in tables Ia – Ic in P189 are used to reject the Null of No Cointegration. Because the po.test() will use the series at the first position to derive the residual used in the test, results would be determined by the series on the most left-hand side.

tseries::po.test(cbind(x, y, z), demean = TRUE, lshort = TRUE)
# Phillips-Ouliaris demeaned = -186.03, Truncation lag parameter = 1, p-value = 0.01

tseries::po.test(cbind(z, x, y), demean = TRUE, lshort = TRUE)
# Phillips-Ouliaris demeaned = -204.7, Truncation lag parameter = 1, p-value = 0.01

tseries::po.test(cbind(z, y, x), demean = TRUE, lshort = TRUE)
# Phillips-Ouliaris demeaned = -204.7, Truncation lag parameter = 1, p-value = 0.01

The Phillips-Ouliaris test implemented in the ca.po() function from the urca package is different. In the ca.po() function, there are two cointegration tests implemented, namely “Pu” and “Pz” tests. Although both the ca.po() function and the po.test() function are supposed to do the Phillips-Ouliaris test，outcomes from both functions are completely different.

Below shows results of the Pu test, which is a Variance Ratio test and the fourth residual-based test described in P171 of the paper. For this test, critical values in tables IIIa – IIIc in P191 are used to reject the Null of No Cointegration. Similar to Phillip’s Z_alpha test, the Pu test also is not invariant to the position of each series and therefore would give different outcomes based upon the series on the most left-hand side.

urca::ca.po(cbind(x, y, z), demean = "constant", lag = "short", type = "Pu")
# The value of the test statistic is: 72.8124

urca::ca.po(cbind(z, x, y), demean = "constant", lag = "short", type = "Pu")
# The value of the test statistic is: 194.5645

urca::ca.po(cbind(z, y, x), demean = "constant", lag = "short", type = "Pu")
# The value of the test statistic is: 194.5645

At last, let’s look at the Pz test implemented in the ca.po() function. For this test, critical values in tables IVa – IVc in P192 are used to reject the Null of No Cointegration. As a multivariate trace statistic, the Pz test has its appeal that the outcome won’t change by the position of each series, as shown below.

urca::ca.po(cbind(x, y, z), demean = "constant", lag = "short", type = "Pz")
# The value of the test statistic is: 219.2746

urca::ca.po(cbind(z, x, y), demean = "constant", lag = "short", type = "Pz")
# The value of the test statistic is: 219.2746

An Utility Function For Monotonic Binning

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.

	manual_bin <- function(df, yname, xname, cuts) {
	cuts <- sort(c(-Inf, cuts, Inf))
	df1 <- df[which(df[[yname]] %in% c(0, 1)), c(yname, xname)]
	all_cnt <- nrow(df1)
	all_bcnt <- sum(df1[[yname]])
	### IDENTIFY DIFFERENT CASES WITH MISSING VALUES ###
	if (all(!is.na(df1[[xname]])) == TRUE) {
	miss_flg <- 0
	df2 <- df1
	}
	else {
	miss_flg <- 1
	df2 <- df1[!is.na(df1[, xname]), ]
	mis <- df1[is.na(df1[, xname]), ]
	mis_cnt <- nrow(mis)
	mis_bcnt <- sum(mis[[yname]])
	if (sum(mis[[yname]]) %in% c(nrow(mis), 0)) {
	miss_flg <- 2
	}
	}
	### SLICE DATAFRAME BY CUT POINTS ###
	for (i in seq(length(cuts) – 1)) {
	bin <- sprintf("%02d", i)
	bin_cnt <- nrow(df2[which(df2[[xname]] > cuts[i] & df2[[xname]] <= cuts[i + 1]), ])
	bin_bcnt <- nrow(df2[which(df2[[xname]] > cuts[i] & df2[[xname]] <= cuts[i + 1] & df2[[yname]] == 1), ])
	if (i == 1) {
	bin_summ <- data.frame(bin = bin, xmin = cuts[i], xmax = cuts[i + 1], cnt = bin_cnt, bcnt = bin_bcnt)
	}
	else {
	bin_summ <- rbind(bin_summ,
	data.frame(bin = bin, xmin = cuts[i], xmax = cuts[i + 1], cnt = bin_cnt, bcnt = bin_bcnt))
	}
	}
	bin_summ$mis_cnt <- 0
	### FIRST CASE FOR MISSING VALUES: BOTH GOODS AND BADS ###
	if (miss_flg == 1) {
	bin_summ <- rbind(data.frame(bin = sprintf("%02d", 0), xmin = NA, xmax = NA, cnt = mis_cnt, bcnt = mis_bcnt, mis_cnt = mis_cnt),
	bin_summ)
	}
	### SECOND CASE FOR MISSING VALUES: ONLY GOODS OR BADS ###
	if (miss_flg == 2) {
	rate <- bin_summ$bcnt / bin_summ$cnt
	if (mis_bcnt == 0) {
	bin_summ[rate == min(rate), "cnt"] <- bin_summ[rate == min(rate), "cnt"] + mis_cnt
	bin_summ[rate == min(rate), "mis_cnt"] <- mis_cnt
	}
	else {
	bin_summ[rate == max(rate), "cnt"] <- bin_summ[rate == max(rate), "cnt"] + mis_cnt
	bin_summ[rate == max(rate), "bcnt"] <- bin_summ[rate == max(rate), "bcnt"] + mis_bcnt
	bin_summ[rate == max(rate), "mis_cnt"] <- mis_cnt
	}
	}
	bin_summ$dist <- bin_summ$cnt / all_cnt
	bin_summ$brate <- bin_summ$bcnt / bin_summ$cnt
	bin_summ$woe <- log((bin_summ$bcnt / all_bcnt) / ((bin_summ$cnt – bin_summ$bcnt) / (all_cnt – all_bcnt)))
	bin_summ$iv <- (bin_summ$bcnt / all_bcnt – (bin_summ$cnt – bin_summ$bcnt) / (all_cnt – all_bcnt)) * bin_summ$woe
	bin_summ$ks <- abs(cumsum(bin_summ$bcnt) / all_bcnt – cumsum(bin_summ$cnt – bin_summ$bcnt) / (all_cnt – all_bcnt)) * 100
	bin_summ$rule <- NA
	for (i in seq(nrow(bin_summ))) {
	if (bin_summ[i, ]$bin == '00') {
	bin_summ[i, ]$rule <- paste("is.na($X)", sep = '')
	}
	else if (bin_summ[i, ]$bin == '01') {
	if (bin_summ[i, ]$mis_cnt > 0) {
	bin_summ[i, ]$rule <- paste("$X <= ", bin_summ[i, ]$xmax, " \| is.na($X)", sep = '')
	}
	else {
	bin_summ[i, ]$rule <- paste("$X <= ", bin_summ[i, ]$xmax, sep = '')
	}
	}
	else if (i == nrow(bin_summ)) {
	if (bin_summ[i, ]$mis_cnt > 0) {
	bin_summ[i, ]$rule <- paste("$X > ", bin_summ[i, ]$xmin, " \| is.na($X)", sep = '')
	}
	else {
	bin_summ[i, ]$rule <- paste("$X > ", bin_summ[i, ]$xmin, sep = '')
	}
	}
	else {
	bin_summ[i, ]$rule <- paste("$X > ", bin_summ[i, ]$xmin, " & ", "$X <= ", bin_summ[i, ]$xmax, sep = '')
	}
	}
	return(result <- data.frame(Bin = bin_summ$bin, Rule = format(bin_summ$rule, width = 30, justify = "right"),
	Frequency = bin_summ$cnt, Percent = round(bin_summ$dist, 2),
	MV_Cnt = bin_summ$mis_cnt, Bad_Freq = bin_summ$bcnt, Bad_Rate = round(bin_summ$brate, 2),
	WoE = round(bin_summ$woe, 4), InfoValue = round(bin_summ$iv, 4), KS_Stat = round(bin_summ$ks, 2)))
	}

	# SAMPLE OUTPUT:
	# Bin Rule Frequency Percent MV_Cnt Bad_Freq Bad_Rate WoE InfoValue KS_Stat
	#1 01 $X <= 82 814 0.14 0 81 0.10 -0.8467 0.0764 9.02
	#2 02 $X > 82 & $X <= 91 837 0.14 0 120 0.14 -0.4316 0.0234 14.44
	#3 03 $X > 91 & $X <= 97 811 0.14 0 148 0.18 -0.1436 0.0027 16.35
	#4 04 $X > 97 & $X <= 101 829 0.14 0 181 0.22 0.0806 0.0009 15.18
	#5 05 $X > 101 & $X <= 107 870 0.15 0 206 0.24 0.1855 0.0054 12.26
	#6 06 $X > 107 & $X <= 115 808 0.14 0 197 0.24 0.2241 0.0074 8.95
	#7 07 $X > 115 \| is.na($X) 868 0.15 1 263 0.30 0.5229 0.0468 0.00

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manual_bin.R

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Improving Binning by Bootstrap Bumping

In the post (https://statcompute.wordpress.com/2018/11/23/more-robust-monotonic-binning-based-on-isotonic-regression), a more robust version of monotonic binning based on the isotonic regression was introduced. Nonetheless, due to the loss of granularity, the predictability has been somewhat compromised, which is a typical dilemma in the data science. On one hand, we don’t want to use a learning algorithm that is too greedy and therefore over-fits the data at the cost of simplicity and generality. On the other hand, we’d also like to get the most predictive power out of our data for better business results.

It is worth mentioning that, although there is a consensus that advanced ensemble algorithms are able to significantly improve the prediction outcome, both bagging and boosting would also destroy the simple structure of binning outputs and therefore might not be directly applicable in this simple case.

In light of above considerations, the bumping (Bootstrap Umbrella of Model Parameters) procedure, which was detailed in Model Search And Inference By Bootstrap Bumping by Tibshirani and Knight (1997), should serve our dual purposes. First of all, since the final binning structure would be derived from an isotonic regression based on the bootstrap sample, the concern about over-fitting the original training data can be addressed. Secondly, through the bumping search across all bootstrap samples, chances are that a closer-to-optimal solution can be achieved. It is noted that, since the original sample is always included in the bumping procedure, a binning outcome with bumping that is at least as good as the one without is guaranteed.

The R function bump_bin() is my effort of implementing the bumping procedure on top of the monotonic binning function based on isotonic regression. Because of the mutual independence of binning across all bootstrap samples, the bumping is a perfect use case of parallelism for the purpose of faster execution, as demonstrated in the function.

	bump_bin <- function(data, y, x, n) {
	n1 <- 50
	n2 <- 10
	set.seed(2019)
	seeds <- c(0, round(runif(n) * as.numeric(paste('1e', ceiling(log10(n)) + 2, sep = '')), 0))
	yname <- deparse(substitute(y))
	xname <- deparse(substitute(x))
	df1 <- data[, c(yname, xname)]
	df2 <- df1[!is.na(df1[, xname]), c(xname, yname)]
	cor <- cor(df2[, 2], df2[, 1], method = "spearman", use = "complete.obs")
	### MONOTONIC BINNING WITH BOOTSTRAP SAMPLES ###
	bin <- function(seed) {
	if (seed == 0) {
	smp <- df2
	}
	else {
	set.seed(seed)
	smp <- df2[sample(seq(nrow(df2)), nrow(df2), replace = T), ]
	}
	reg <- isoreg(smp[, 1], cor / abs(cor) * smp[, 2])
	cut <- knots(as.stepfun(reg))
	df2$cut <- cut(df2[[xname]], breaks = unique(cut), include.lowest = T)
	df3 <- Reduce(rbind,
	lapply(split(df2, df2$cut),
	function(x) data.frame(n = nrow(x), b = sum(x[[yname]]), g = sum(1 – x[[yname]]),
	maxx = max(x[[xname]]), minx = min(x[[xname]]))))
	df4 <- df3[which(df3[["n"]] > n1 & df3[["b"]] > n2 & df3[["g"]] > n2), ]
	df2$good <- 1 – df2[[yname]]
	out <- smbinning::smbinning.custom(df2, "good", xname, cuts = df4$maxx[-nrow(df4)])$ivtable
	return(data.frame(iv = out$IV[length(out$IV)], nbin = nrow(out) – 2,
	cuts = I(list(df4$maxx[-nrow(df4)])),
	abs_cor = abs(cor(as.numeric(row.names(out)[1:(nrow(out) – 2)]),
	out$WoE[1:(nrow(out) – 2)], method = "spearman"))))
	}
	bump_out <- Reduce(rbind, parallel::mclapply(seeds, mc.cores = parallel::detectCores(), bin))
	### FIND THE CUT MAXIMIZING THE INFORMATION VALUE ###
	cut2 <- bump_out[order(-bump_out["abs_cor"], -bump_out["iv"], bump_out["nbin"]), ]$cuts[[1]]
	df1$good <- 1 – df1[[yname]]
	return(smbinning::smbinning.custom(df1, "good", xname, cuts = cut2)$ivtable)
	}

	df <- sas7bdat::read.sas7bdat("Downloads/accepts.sas7bdat")

	bump_bin(df, bad, bureau_score, n = 200)

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bump_bin.r

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The output below shows the bumping result based on 20 bootstrap samples. There is a small improvement in the information value, e.g. 0.8055 vs 0.8021 without bumping, implying a potential opportunity of bumping with a simpler binning structure, e.g. 12 bins vs 20 bins.

   Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds  LnOdds     WoE     IV
1    <= 565     92      41     51        92         41        51 0.0158   0.4457  0.5543  0.8039 -0.2183 -1.5742 0.0532
2    <= 620    470     269    201       562        310       252 0.0805   0.5723  0.4277  1.3383  0.2914 -1.0645 0.1172
3    <= 653    831     531    300      1393        841       552 0.1424   0.6390  0.3610  1.7700  0.5710 -0.7850 0.1071
4    <= 662    295     213     82      1688       1054       634 0.0505   0.7220  0.2780  2.5976  0.9546 -0.4014 0.0091
5    <= 665    100      77     23      1788       1131       657 0.0171   0.7700  0.2300  3.3478  1.2083 -0.1476 0.0004
6    <= 675    366     290     76      2154       1421       733 0.0627   0.7923  0.2077  3.8158  1.3391 -0.0168 0.0000
7    <= 699    805     649    156      2959       2070       889 0.1379   0.8062  0.1938  4.1603  1.4256  0.0696 0.0007
8    <= 707    312     268     44      3271       2338       933 0.0535   0.8590  0.1410  6.0909  1.8068  0.4509 0.0094
9    <= 716    321     278     43      3592       2616       976 0.0550   0.8660  0.1340  6.4651  1.8664  0.5105 0.0122
10   <= 721    181     159     22      3773       2775       998 0.0310   0.8785  0.1215  7.2273  1.9779  0.6219 0.0099
11   <= 755    851     789     62      4624       3564      1060 0.1458   0.9271  0.0729 12.7258  2.5436  1.1877 0.1403
12      755    898     867     31      5522       4431      1091 0.1538   0.9655  0.0345 27.9677  3.3311  1.9751 0.3178
13  Missing    315     210    105      5837       4641      1196 0.0540   0.6667  0.3333  2.0000  0.6931 -0.6628 0.0282
14    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804  1.3559  0.0000 0.8055

The output below is based on bumping with 200 bootstrap samples. The information value has been improved by 2%, e.g. 0.8174 vs 0.8021, with a lower risk of over-fitting, e.g. 14 bins vs 20 bins.

   Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds  LnOdds     WoE     IV
1    <= 559     79      34     45        79         34        45 0.0135   0.4304  0.5696  0.7556 -0.2803 -1.6362 0.0496
2    <= 633    735     428    307       814        462       352 0.1259   0.5823  0.4177  1.3941  0.3323 -1.0237 0.1684
3    <= 637     86      53     33       900        515       385 0.0147   0.6163  0.3837  1.6061  0.4738 -0.8822 0.0143
4    <= 653    493     326    167      1393        841       552 0.0845   0.6613  0.3387  1.9521  0.6689 -0.6870 0.0477
5    <= 662    295     213     82      1688       1054       634 0.0505   0.7220  0.2780  2.5976  0.9546 -0.4014 0.0091
6    <= 665    100      77     23      1788       1131       657 0.0171   0.7700  0.2300  3.3478  1.2083 -0.1476 0.0004
7    <= 679    504     397    107      2292       1528       764 0.0863   0.7877  0.2123  3.7103  1.3111 -0.0448 0.0002
8    <= 683    160     129     31      2452       1657       795 0.0274   0.8062  0.1938  4.1613  1.4258  0.0699 0.0001
9    <= 699    507     413     94      2959       2070       889 0.0869   0.8146  0.1854  4.3936  1.4802  0.1242 0.0013
10   <= 716    633     546     87      3592       2616       976 0.1084   0.8626  0.1374  6.2759  1.8367  0.4808 0.0216
11   <= 722    202     178     24      3794       2794      1000 0.0346   0.8812  0.1188  7.4167  2.0037  0.6478 0.0118
12   <= 746    619     573     46      4413       3367      1046 0.1060   0.9257  0.0743 12.4565  2.5222  1.1663 0.0991
13   <= 761    344     322     22      4757       3689      1068 0.0589   0.9360  0.0640 14.6364  2.6835  1.3276 0.0677
14      761    765     742     23      5522       4431      1091 0.1311   0.9699  0.0301 32.2609  3.4739  2.1179 0.2979
15  Missing    315     210    105      5837       4641      1196 0.0540   0.6667  0.3333  2.0000  0.6931 -0.6628 0.0282
16    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804  1.3559  0.0000 0.8174

More Robust Monotonic Binning Based on Isotonic Regression

Since publishing the monotonic binning function based upon the isotonic regression (https://statcompute.wordpress.com/2017/06/15/finer-monotonic-binning-based-on-isotonic-regression), I’ve received some feedback from peers. A potential concern is that, albeit improving the granularity and predictability, the binning is too fine and might not generalize well in the new data.

In light of the concern, I revised the function by imposing two thresholds, including a minimum sample size and a minimum number of bads for each bin. Both thresholds can be adjusted based on the specific use case. For instance, I set the minimum sample size equal to 50 and the minimum number of bads (and goods) equal to 10 in the example below.

	isoreg_bin <- function(data, y, x) {
	n1 <- 50
	n2 <- 10
	yname <- deparse(substitute(y))
	xname <- deparse(substitute(x))
	df1 <- data[, c(yname, xname)]
	df2 <- df1[!is.na(df1[, xname]), c(xname, yname)]
	cor <- cor(df2[, 2], df2[, 1], method = "spearman", use = "complete.obs")
	reg <- isoreg(df2[, 1], cor / abs(cor) * df2[, 2])
	cut <- knots(as.stepfun(reg))
	df2$cut <- cut(df2[[xname]], breaks = unique(cut), include.lowest = T)
	df3 <- Reduce(rbind,
	lapply(split(df2, df2$cut),
	function(x) data.frame(n = nrow(x),
	b = sum(x[[yname]]),
	g = sum(1 – x[[yname]]),
	maxx = max(x[[xname]]),
	minx = min(x[[xname]]))))
	df4 <- df3[which(df3[["n"]] > n1 & df3[["b"]] > n2 & df3[["g"]] > n2), ]
	df1$good <- 1 – df1[[yname]]
	return(smbinning::smbinning.custom(df1, "good", xname, cuts = df4$maxx[-nrow(df4)])$ivtable)
	}

	df <- sas7bdat::read.sas7bdat("Downloads/accepts.sas7bdat")

	isoreg_bin(df, bad, bureau_score)

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isoreg_bin.r

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As shown in the output below, the number of generated bins and the information value happened to be between the result in (https://statcompute.wordpress.com/2017/06/15/finer-monotonic-binning-based-on-isotonic-regression) and the result in (https://statcompute.wordpress.com/2017/01/22/monotonic-binning-with-smbinning-package). More importantly, given a larger sample size for each bin, the binning algorithm is more robust and generalizable.

   Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds  LnOdds     WoE     IV
1    <= 559     79      34     45        79         34        45 0.0135   0.4304  0.5696  0.7556 -0.2803 -1.6362 0.0496
2    <= 602    189     102     87       268        136       132 0.0324   0.5397  0.4603  1.1724  0.1591 -1.1969 0.0608
3    <= 605     56      31     25       324        167       157 0.0096   0.5536  0.4464  1.2400  0.2151 -1.1408 0.0162
4    <= 632    468     279    189       792        446       346 0.0802   0.5962  0.4038  1.4762  0.3895 -0.9665 0.0946
5    <= 639    150      95     55       942        541       401 0.0257   0.6333  0.3667  1.7273  0.5465 -0.8094 0.0207
6    <= 653    451     300    151      1393        841       552 0.0773   0.6652  0.3348  1.9868  0.6865 -0.6694 0.0412
7    <= 662    295     213     82      1688       1054       634 0.0505   0.7220  0.2780  2.5976  0.9546 -0.4014 0.0091
8    <= 665    100      77     23      1788       1131       657 0.0171   0.7700  0.2300  3.3478  1.2083 -0.1476 0.0004
9    <= 667     57      44     13      1845       1175       670 0.0098   0.7719  0.2281  3.3846  1.2192 -0.1367 0.0002
10   <= 677    381     300     81      2226       1475       751 0.0653   0.7874  0.2126  3.7037  1.3093 -0.0466 0.0001
11   <= 679     66      53     13      2292       1528       764 0.0113   0.8030  0.1970  4.0769  1.4053  0.0494 0.0000
12   <= 683    160     129     31      2452       1657       795 0.0274   0.8062  0.1938  4.1613  1.4258  0.0699 0.0001
13   <= 689    203     164     39      2655       1821       834 0.0348   0.8079  0.1921  4.2051  1.4363  0.0804 0.0002
14   <= 699    304     249     55      2959       2070       889 0.0521   0.8191  0.1809  4.5273  1.5101  0.1542 0.0012
15   <= 707    312     268     44      3271       2338       933 0.0535   0.8590  0.1410  6.0909  1.8068  0.4509 0.0094
16   <= 717    368     318     50      3639       2656       983 0.0630   0.8641  0.1359  6.3600  1.8500  0.4941 0.0132
17   <= 721    134     119     15      3773       2775       998 0.0230   0.8881  0.1119  7.9333  2.0711  0.7151 0.0094
18   <= 739    474     438     36      4247       3213      1034 0.0812   0.9241  0.0759 12.1667  2.4987  1.1428 0.0735
19   <= 746    166     154     12      4413       3367      1046 0.0284   0.9277  0.0723 12.8333  2.5520  1.1961 0.0277
20      746   1109    1064     45      5522       4431      1091 0.1900   0.9594  0.0406 23.6444  3.1631  1.8072 0.3463
21  Missing    315     210    105      5837       4641      1196 0.0540   0.6667  0.3333  2.0000  0.6931 -0.6628 0.0282
22    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804  1.3559  0.0000 0.8021

Creating List with Iterator

In the post (https://statcompute.wordpress.com/2018/11/17/growing-list-vs-growing-queue), it is shown how to grow a list or a list-like queue based upon a dataframe. In the example, the code snippet was heavily relied on the FOR loop to do the assignment item by item, which I can’t help thinking of potential alternatives afterwards. For instance, is there an implementation that would enable us to traverse a dataframe without knowing its dimension in advance or even without using the loop?

In the previous example, if we’d want to fetch rows from a dataframe, we need to know the number of rows in advance by using the nrow() function. As shown below, we need to generate a sequence of row index and then to fetch rows by indexing,


lapply(seq(nrow(iris)), function(idx) as.list(iris[idx, ]))

If we don’t like to fetch rows from a dataframe by indexing, a workaround would be the split() function by splitting the dataframe into rows. The additional unname() function is doing nothing but removing redundant list names. However, we still need to know the number of rows in this solution.


unname(lapply(split(iris, seq(nrow(iris))), function(row) as.list(row)))

With the iterators package, the coding logic can be slightly cleaner and more generic by wrapping the dataframe into a row-wise iterator object, as demonstrated below.


lapply(iterators::iter(iris, by = 'row'), function(row) as.list(row))

In addition, the iterator object is customizable. For instance, we can easily apply a filter function to the iterator.


lapply(iterators::iter(iris, by = 'row', checkFunc = function(x) x$Species == "setosa" & x$Petal.Width > 0.4), function(x) as.list(x))

If the use case is not creating a list, as discussed above, but growing an empty list by inserting, then a simple iterator might not be sufficient. In such case, we might need to tweak it a little by enumerating the iterator with the ienum() function in the itertools2 package. Alternatively, we can also use itertools2::izip() function to construct the enumeration manually. It is noted that, because we need to assign values with a function call within the lapply() to a list in the parent environment, the scoping assignment should be used.


with(l1 <- list(), 
     invisible(lapply(itertools2::ienum(iterators::iter(iris, by = 'row')), function(x) l1[[x$index]] <<- as.list(x$value))))

### CHECK THE EQUALITY ###
identical(l1, lapply(iterators::iter(iris, by = 'row'), function(row) as.list(row)))
# TRUE

with(l2 <- list(), 
     invisible(lapply(itertools2::izip(i = itertools2::icount(start = 1), v = iterators::iter(iris, by = 'row')), function(x) l2[[x$i]] <<- as.list(x$v))))

### CHECK THE EQUALITY ###
identical(l2, lapply(iterators::iter(iris, by = 'row'), function(row) as.list(row)))
# TRUE

Growing List vs Growing Queue

### GROWING LIST ###
base_lst1 <- function(df) {
  l <- list()
  for (i in seq(nrow(df))) l[[i]] <- as.list(df[i, ])
  return(l)
}

### PRE-ALLOCATING LIST ###
base_lst2 <- function(df) {
  l <- vector(mode = "list", length = nrow(df))
  for (i in seq(nrow(df))) l[[i]] <- as.list(df[i, ])
  return(l)
}

### DEQUER PACKAGE ###
dequer_queue <- function(df) {
  q <- dequer::queue()
  for (i in seq(nrow(df))) dequer::pushback(q, as.list(df[i, ]))
  return(as.list(q))
}

### LIQUEUER PACKAGE ###
liqueuer_queue <- function(df) {
  q <- liqueueR::Queue$new()
  for (i in seq(nrow(df))) q$push(as.list(df[i, ]))
  return(q$data)
}

### COLLECTIONS PACKAGE ###
collections_queue <- function(df) {
  q <- collections::Queue$new()
  for (i in seq(nrow(df))) q$push(as.list(df[i, ]))
  return(q$as_list())
}

### RSTACKDEQUE PACKAGE ###
rstackdeque_queue <- function(df) {
  q <- rstackdeque::rpqueue()
  for (i in seq(nrow(df))) q <- rstackdeque::insert_back(q, as.list(df[i, ]))
  return(as.list(q))
}

nyc <- read.csv("Downloads/nycflights.csv")

compare <- function(ds) {
  tests <- c("dequer_queue(ds)",
             "base_lst2(ds)",
             "liqueuer_queue(ds)",
             "collections_queue(ds)",
             "rstackdeque_queue(ds)")
  for (t in tests) print(identical(base_lst1(ds), eval(parse(text = t))))
}

compare(nyc[1:10, ])
#[1] TRUE
#[1] TRUE
#[1] TRUE
#[1] TRUE
#[1] TRUE

### BENCHMARKS ###
bm <- function(ds) {
  rbenchmark::benchmark(replications = 5, order = "elapsed", relative = "elapsed",
                        columns = c("test", "replications", "elapsed", "relative"),
  "GROWING LIST"         = base_lst1(ds),
  "PRE-ALLOCATING LIST"  = base_lst2(ds),
  "DEQUER::QUEUE"        = dequer_queue(ds),
  "LIQUEUER::QUEUE"      = liqueuer_queue(ds),
  "COLLECTIONS::QUEUE"   = collections_queue(ds),
  "RSTACKDEQUE::RPQUEUE" = rstackdeque_queue(ds)
  )
}

bm(nyc[1:1000, ])
                  test replications elapsed relative
#1         GROWING LIST            5   0.808    1.000
#2  PRE-ALLOCATING LIST            5   0.839    1.038
#5   COLLECTIONS::QUEUE            5   0.842    1.042
#4      LIQUEUER::QUEUE            5   1.091    1.350
#3        DEQUER::QUEUE            5   1.375    1.702
#6 RSTACKDEQUE::RPQUEUE            5   1.901    2.353

bm(nyc[1:10000, ])
#                  test replications elapsed relative
#5   COLLECTIONS::QUEUE            5   8.175    1.000
#1         GROWING LIST            5   8.505    1.040
#2  PRE-ALLOCATING LIST            5  12.554    1.536
#4      LIQUEUER::QUEUE            5  17.325    2.119
#6 RSTACKDEQUE::RPQUEUE            5  21.785    2.665
#3        DEQUER::QUEUE            5  22.030    2.695

bm(nyc[1:20000, ])
#                  test replications elapsed relative
#5   COLLECTIONS::QUEUE            5  16.730    1.000
#2  PRE-ALLOCATING LIST            5  17.134    1.024
#1         GROWING LIST            5  17.342    1.037
#4      LIQUEUER::QUEUE            5  48.359    2.891
#6 RSTACKDEQUE::RPQUEUE            5  52.420    3.133
#3        DEQUER::QUEUE            5  79.938    4.778

bm(nyc[1:30000, ])
#                  test replications elapsed relative
#2  PRE-ALLOCATING LIST            5  24.600    1.000
#5   COLLECTIONS::QUEUE            5  24.797    1.008
#1         GROWING LIST            5  25.600    1.041
#6 RSTACKDEQUE::RPQUEUE            5  60.908    2.476
#4      LIQUEUER::QUEUE            5 102.482    4.166
#3        DEQUER::QUEUE            5 182.039    7.400

Convert Data Frame to Dictionary List in R

In R, there are a couple ways to convert the column-oriented data frame to a row-oriented dictionary list or alike, e.g. a list of lists.

In the code snippet below, I would show each approach and how to extract keys and values from the dictionary. As shown in the benchmark, it appears that the generic R data structure is still the most efficient.

### LIST() FUNCTION IN BASE PACKAGE ###
x1 <- as.list(iris[1, ])
names(x1)
# [1] "Sepal.Length" "Sepal.Width"  "Petal.Length" "Petal.Width"  "Species"
x1[["Sepal.Length"]]
# [1] 5.1

### ENVIRONMENT-BASED SOLUTION ###
envn_dict <- function(x) {
  e <- new.env(hash = TRUE)
  for (name in names(x)) assign(name, x[, name], e)
  return(e)
}

x2 <- envn_dict(iris[1, ])
ls(x2)
# [1] "Petal.Length" "Petal.Width"  "Sepal.Length" "Sepal.Width"  "Species"
x2[["Sepal.Length"]]
# [1] 5.1

### COLLECTIONS PACKAGE ###
coll_dict <-  function(x) {
  d <- collections::Dict$new()
  for (name in names(x)) d$set(name, x[, name])
  return(d)
}

x3 <- coll_dict(iris[1, ])
x3$keys()
# [1] "Petal.Length" "Petal.Width"  "Sepal.Length" "Sepal.Width"  "Species"
x3$get("Sepal.Length")
# [1] 5.1

### HASH PACKAGE ###
hash_dict <- function(x) {
  d <- hash::hash()
  for (name in names(x)) d[[name]] <- x[, name]
  return(d)
}

x4 <- hash_dict(iris[1, ])
hash::keys(x4)
# [1] "Petal.Length" "Petal.Width"  "Sepal.Length" "Sepal.Width"  "Species"
hash::values(x4, "Sepal.Length")
# Sepal.Length
#          5.1

### DATASTRUCTURES PACKAGE ###
data_dict <- function(x) {
  d <- datastructures::hashmap()
  for (name in names(x)) d[name] <- x[, name]
  return(d)
}

x5 <- data_dict(iris[1, ])
datastructures::keys(x5)
# [1] "Species"      "Sepal.Width"  "Petal.Length" "Sepal.Length" "Petal.Width"
datastructures::get(x5, "Sepal.Length")
# [1] 5.1

### FROM PYTHON ###
py2r_dict <- function(x) {
  return(reticulate::py_dict(names(x), x, TRUE))
}

x6 <- py2r_dict(iris[1, ])
x6$keys()
# [1] "Petal.Length" "Sepal.Length" "Petal.Width"  "Sepal.Width"  "Species"
x6["Sepal.Length"]
# [1] 5.1

### CONVERT DATAFRAME TO DICTIONARY LIST ###
to_list <- function(df, fn) {
  l <- list()
  for (i in seq(nrow(df))) l[[i]] <- fn(df[i, ])
  return(l)
}

rbenchmark::benchmark(replications = 100, order = "elapsed", relative = "elapsed",
                      columns = c("test", "replications", "elapsed", "relative", "user.self", "sys.self"),
  "BASE::LIST"              = to_list(iris, as.list),
  "BASE::ENVIRONMENT"       = to_list(iris, envn_dict),
  "COLLECTIONS::DICT"       = to_list(iris, coll_dict),
  "HASH::HASH"              = to_list(iris, hash_dict),
  "DATASTRUCTURES::HASHMAP" = to_list(iris, data_dict),
  "RETICULATE::PY_DICT"     = to_list(iris, py2r_dict)
)
#                     test replications elapsed relative user.self sys.self
#1              BASE::LIST          100   0.857    1.000     0.857    0.000
#2       BASE::ENVIRONMENT          100   1.607    1.875     1.607    0.000
#4              HASH::HASH          100   2.600    3.034     2.600    0.000
#3       COLLECTIONS::DICT          100   2.956    3.449     2.956    0.000
#5 DATASTRUCTURES::HASHMAP          100  16.070   18.751    16.071    0.000
#6     RETICULATE::PY_DICT          100  18.030   21.039    18.023    0.008

Monotonic Binning with Equal-Sized Bads for Scorecard Development

In previous posts (https://statcompute.wordpress.com/2017/01/22/monotonic-binning-with-smbinning-package) and (https://statcompute.wordpress.com/2017/06/15/finer-monotonic-binning-based-on-isotonic-regression), I’ve developed 2 different algorithms for monotonic binning. While the first tends to generate bins with equal densities, the second would define finer bins based on the isotonic regression.

In the code snippet below, a third approach would be illustrated for the purpose to generate bins with roughly equal-sized bads. Once again, for the reporting layer, I leveraged the flexible smbinning::smbinning.custom() function with a small tweak.


df <- sas7bdat::read.sas7bdat("Downloads/accepts.sas7bdat")

monobin <- function(df, x, y) {
  yname <- deparse(substitute(y))
  xname <- deparse(substitute(x))
  d1 <- df[c(yname, xname)]
  d2 <- d1[which(d1[[yname]] == 1), ]
  nbin <- round(1 / max(table(d2[[xname]]) / sum(table(d2[[xname]]))))
  repeat {
    cuts <- Hmisc::cut2(d2[[xname]], g = nbin, onlycuts = T)
    d1$cut <- cut(d1[[xname]], breaks = cuts, include.lowest = T)
    d3 <- Reduce(rbind, Map(function(x) data.frame(xmean = mean(x[[xname]], na.rm = T), ymean = mean(x[[yname]])), split(d1, d1$cut)))
    if(abs(cor(d3$xmean, d3$ymean, method = "spearman")) == 1 | nrow(d3) == 2) {
      break
    }
    nbin <- nbin - 1
  }
  df$good <- 1 -  d1[[yname]]
  return(smbinning::smbinning.custom(df, "good", xname, cuts = cuts[c(-1, -length(cuts))]))
}

As shown in the output, the number of bads in each bin, with the exception for missings, is similar and varying within a small range. However, the number of records tends to increase to ensure the monotonicity of bad rates across all bins.

monobin(df, bureau_score, bad)
#   Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds LnOdds     WoE     IV
#1    <= 602    268     136    132       268        136       132 0.0459   0.5075  0.4925  1.0303 0.0299 -1.3261 0.1075
#2    <= 621    311     185    126       579        321       258 0.0533   0.5949  0.4051  1.4683 0.3841 -0.9719 0.0636
#3    <= 636    302     186    116       881        507       374 0.0517   0.6159  0.3841  1.6034 0.4722 -0.8838 0.0503
#4    <= 649    392     259    133      1273        766       507 0.0672   0.6607  0.3393  1.9474 0.6665 -0.6895 0.0382
#5    <= 661    387     268    119      1660       1034       626 0.0663   0.6925  0.3075  2.2521 0.8119 -0.5441 0.0227
#6    <= 676    529     415    114      2189       1449       740 0.0906   0.7845  0.2155  3.6404 1.2921 -0.0639 0.0004
#7    <= 693    606     491    115      2795       1940       855 0.1038   0.8102  0.1898  4.2696 1.4515  0.0956 0.0009
#8     717   1883    1775    108      5522       4431      1091 0.3226   0.9426  0.0574 16.4352 2.7994  1.4435 0.4217
#10  Missing    315     210    105      5837       4641      1196 0.0540   0.6667  0.3333  2.0000 0.6931 -0.6628 0.0282
#11    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804 1.3559  0.0000 0.7508

By-Group Summary with SparkR – Follow-up for A Reader Comment

A reader, e.g. Mr. Wayne Zhang, of my previous post (https://statcompute.wordpress.com/2018/09/03/playing-map-and-reduce-in-r-by-group-calculation) made a good comment that “Why not use directly either Spark or H2O to derive such computations without involving detailed map/reduce”.

Although Spark is not as flexible as R in the statistical computation (in my opinion), it does have advantages for munging large-size data sets, such as aggregating, selecting, filtering, and so on. In the demonstration below, it is shown how to do the same by-group calculation by using SparkR.

In SparkR, the most convenient way to do the by-group calculation is to use the agg() function after grouping the Spark DataFrame based on the specific column (or columns) with the groupBy() function.

library(SparkR, lib.loc = paste(Sys.getenv("SPARK_HOME"), "/R/lib", sep = ""))
sc <- sparkR.session(master = "local", sparkConfig = list(spark.driver.memory = "10g", spark.driver.cores = "4"))
df <- as.DataFrame(iris)
summ1 <- agg(
  groupBy(df, alias(df$Species, "species")), 
  sl_avg = avg(df$Sepal_Length), 
  sw_avg = avg(df$Sepal_Width)
)
showDF(summ1)
+----------+-----------------+------------------+
|   species|           sl_avg|            sw_avg|
+----------+-----------------+------------------+
| virginica|6.587999999999998|2.9739999999999998|
|versicolor|            5.936|2.7700000000000005|
|    setosa|5.005999999999999| 3.428000000000001|
+----------+-----------------+------------------+

Alternatively, we can also use the gapply() function to apply an anonymous function calculating statistics to each chunk of the grouped Spark DataFrame. What’s more flexible in this approach is that we can define the schema of the output data, such as names and formats.

summ2 <- gapply(
  df, 
  df$"Species", 
  function(key, x) {
    data.frame(key, mean(x$Sepal_Length), mean(x$Sepal_Width), stringsAsFactors = F)
  }, 
  "species STRING, sl_avg DOUBLE, sw_avg DOUBLE"
)
showDF(summ2)
+----------+------+------+
|   species|sl_avg|sw_avg|
+----------+------+------+
| virginica| 6.588| 2.974|
|versicolor| 5.936|  2.77|
|    setosa| 5.006| 3.428|
+----------+------+------+

At last, we can take advantage of the Spark SQL engine after saving the DataFrame as a table.

createOrReplaceTempView(df, "tbl")
summ3 <- sql("select Species as species, avg(Sepal_Length) as sl_avg, avg(Sepal_Width) as sw_avg from tbl group by Species")
showDF(summ3)
+----------+-----------------+------------------+
|   species|           sl_avg|            sw_avg|
+----------+-----------------+------------------+
| virginica|6.587999999999998|2.9739999999999998|
|versicolor|            5.936|2.7700000000000005|
|    setosa|5.005999999999999| 3.428000000000001|
+----------+-----------------+------------------+

Union Multiple Data.Frames with Different Column Names

On Friday, while working on a project that I needed to union multiple data.frames with different column names, I realized that the base::rbind() function doesn’t take data.frames with different columns names and therefore just quickly drafted a rbind2() function on the fly to get the job done based on the idea of MapReduce that I discussed before (https://statcompute.wordpress.com/2018/09/08/playing-map-and-reduce-in-r-subsetting).

rbind2 <- function(lst) {
  h <- unique(unlist(lapply(lst, names)))
  Reduce(rbind, parallel::mcMap(function(x) {x[, setdiff(h, names(x))] <- NA; return(x)}, lst, mc.cores = length(lst)))
}

On Saturday, when I revisited the problem, I found a very good thread on the stackoverflow (https://stackoverflow.com/questions/3402371/combine-two-data-frames-by-rows-rbind-when-they-have-different-sets-of-columns) discussing various approaches addressing my problem yesterday. Out of curiosity, I did a comparison between the rbind2() and discussed approaches by combining 8 data.frames each with a million records. As shown in the plot, my homebrew rbind2() function is only marginally faster than the gtools::smartbind() function and the dplyr::bind_rows function is the most efficient.

n <- 1000000
d1 <- data.frame(id = 1:n, x1 = 1)
d2 <- data.frame(id = 1:n, x2 = 2)
d3 <- data.frame(id = 1:n, x3 = 3)
d4 <- data.frame(id = 1:n, x4 = 4)
d5 <- data.frame(id = 1:n, x5 = 5)
d6 <- data.frame(id = 1:n, x6 = 6)
d7 <- data.frame(id = 1:n, x7 = 7)
d8 <- data.frame(id = 1:n, x8 = 8)
microbenchmark::microbenchmark(times = 10, 
  "homebrew::rbind2"      = {rbind2(list(d1, d2, d3, d4, d5, d6, d7, d8))},
  "gtools::smartbind"     = {gtools::smartbind(list = list(d1, d2, d3, d4, d5, d6, d7, d8))},
  "dplyr::bind_rows"      = {dplyr::bind_rows(d1, d2, d3, d4, d5, d6, d7, d8)},
  "plyr::rbind.fill"      = {plyr::rbind.fill(d1, d2, d3, d4, d5, d6, d7, d8)},
  "data.table::rbindlist" = {data.table::rbindlist(list(d1, d2, d3, d4, d5, d6, d7, d8), fill = T)}
)

Rplot

Why Vectorize?

In the post (https://statcompute.wordpress.com/2018/09/15/how-to-avoid-for-loop-in-r), I briefly introduced the idea of vectorization and potential use cases. One might be wondering why we even need the Vectorize() function given the fact that it is just a wrapper and whether there is any material efficiency gain by vectorizing a function. It is true that the Vectorize() function is not able to improve the efficiency of any function itself that is wrapped around, e.g. vectorized. However, the vectorization can change the input format of a function that normally consumes scalar inputs before being vectorized and therefore would improve the processing efficiency. An example is given below to demonstrate the value of vectorization.

When we want to locate the index of a value within the long vector with millions of rows, the which() function should be the fastest, e.g. "which((0:100) == 10)". When we want to locate indices of several values within the vector, the match() function might be the most intuitive, e.g. "match(c(10, 12), 0:100)". If we would like to take advantage of the speed offered by the which() function, then we might consider one of the following:
A. Using the “%in%” operator within the which() function such as "which(0:100 %in% c(10, 12))", where “%in%” is the shorthand of the match() function.
B. Parsing out each lookup value and then connecting them by “|” operators such as "which(eval(parse(text = paste('0:100 == ', c(10, 12), collapse= '|'))))".

Besides the two above, we can also leverage the idea of MapReduce discussed in https://statcompute.wordpress.com/2018/09/08/playing-map-and-reduce-in-r-subsetting such as "Reduce(c, Map(function(x) which((0:100) == x), c(10, 12)))".

However, since the Vectorize() function is able to change the input format from a scalar to a vector, we can now consider vectorizing the which() function, which would consume the vector directly such as "(Vectorize(function(s, l) which(l == s), 's')) (c(10, 12), 0:100)". In this newly defined function, there are two parameters, e.g. “s” and “l”, of which “s” is the input changing from a scalar to a vector after the vectorization.

With all ideas on the table, a benchmark comparison is presented below to show how fast to look up 5 values from a vector with a million rows by using each above-mentioned approach. Additionally, since it is straightforward to extend the idea of Parallelism to MapReduce and vectorization, we will add two parallel solutions in the benchmark, including the parallel::pvec() function that executes the vectorization in parallel and the parallel::mcMap() function that is considered the parallelized Map() function.

tbl <- 0:1000000
lst <- 10 ** (1:5)

str_which <- function(s, l) which(eval(parse(text = paste('l == ', s, collapse=  '|'))))

map_which <- function(s, l) Reduce(c, Map(function(x) which(l == x), s))

vec_which <- Vectorize(function(s, l) which(l == s), 's')

mcmap_which <- function(s, l) Reduce(c, parallel::mcMap(function(x) which(l == x), s, mc.cores = length(s)))

mcvec_which <- function(s, l) parallel::pvec(s, mc.cores = length(s), function(x) which(l == x))

rbenchmark::benchmark(replications = 1000, order = "user.self", relative = "user.self",
  columns = c("test", "relative", "elapsed", "user.self", "sys.self", "user.child", "sys.child"),
  match = {match(lst, tbl)},
  which = {which(tbl %in% lst)},
  str_which = {str_which(lst, tbl)},
  vec_which = {vec_which(lst, tbl)},
  map_which = {map_which(lst, tbl)},
  mcvec_which = {mcvec_which(lst, tbl)},
  mcmap_which = {mcmap_which(lst, tbl)}
)
#        test relative elapsed user.self sys.self user.child sys.child
# mcvec_which    1.000  25.296     1.722   12.477     33.191    30.004
# mcmap_which    1.014  25.501     1.746   12.424     34.231    30.228
#   map_which    9.642  18.240    16.604    1.635      0.000     0.000
#   vec_which    9.777  18.413    16.836    1.576      0.000     0.000
#       which   12.130  22.060    20.888    1.171      0.000     0.000
#   str_which   13.467  25.355    23.191    2.164      0.000     0.000
#       match   36.659  64.114    63.126    0.986      0.000     0.000

With no surprise, both parallel solutions are at least 10 times faster than any single-core solution in terms of the user CPU time. It is also intriguing to see that the vectorization is as efficient as the MapReduce no matter with a single core or multiple cores and is significantly faster than first three approaches shown early and that the match() function, albeit simple, is the slowest, which in turn justifies efforts on vectorizing the which() function.

How to Avoid For Loop in R

A FOR loop is the most intuitive way to apply an operation to a series by looping through each item one by one, which makes perfect sense logically but should be avoided by useRs given the low efficiency. In R, there are two ways to implement the same functionality of a FOR loop. The first option is the lapply() or sapply() function that applies a function to each item in the list, which is very similar to the Map() function that I showed in https://statcompute.wordpress.com/2018/09/08/playing-map-and-reduce-in-r-subsetting and https://statcompute.wordpress.com/2018/09/03/playing-map-and-reduce-in-r-by-group-calculation. The second option is to “vectorize” a function by using the Vectorize() function such that the newly vectorized function can consume the list directly.

Below is a quick demonstration showing how to recode a FOR loop by using lapply() and Vectorize() functions. We first created a dummy loop that iterates 3 times and then prints out itself.

for (i in 1:3) {print(paste("iter", i))}
#[1] "iter 1"
#[1] "iter 2"
#[1] "iter 3"

To migrate the above FOR loop, we just need to wrap the operation “print(paste(“iter”, i))” into an anonymous function and then to apply this anonymous function to each element in the series by using the lapply() function. Please note that the invisible() function used below doesn’t do anything material but suppress printing out the object value.

invisible(lapply(1:3, function(i) print(paste("iter", i))))
#[1] "iter 1"
#[1] "iter 2"
#[1] "iter 3"

The vectorization is a little tricky. It is noted that the anonymous function created above can only be applied to each item in the series. In order to have the anonymous function consuming the whole series instead of the single item, we should create a so-called vectorized function by using the Vectorize() function and then apply this newly created function to the series directly, as shown below.

invisible(Vectorize(function(i) print(paste("iter", i)), SIMPLIFY = F) (1:3))
#[1] "iter 1"
#[1] "iter 2"
#[1] "iter 3"

From what has been shown so far, it appears that the solution with a FOR loop is most intuitive and easier to understand. One might wonder why we need to go through the hassle.

In the example below that is borrowed from https://statcompute.wordpress.com/2018/09/08/playing-map-and-reduce-in-r-subsetting, let’s see how to get the job done with the FOR loop. First of all, we need to get things ready by converting the data.frame into a list with 2 data.frames named “lst” and defining a subsetting function named “fn”, similar to what we did before.

data(iris)
expr = expression(Sepal.Length > 7 & Sepal.Width > 3)
lst <- split(iris, sort((1:nrow(iris)) %% 2))
fn <- function(x) x[with(x, which(eval(expr))), ]

The code snippet below shows how to loop through the list by using the FOR loop and then subset each data.frame, which seems more complicated than how it should be.

LoopFn <- function(l) {
  result <- data.frame()
  for (i in l) {
    result <- rbind(result, fn(i))
  }
  row.names(result) <- NULL
  return(result)
}
LoopFn(lst)  
#  Sepal.Length Sepal.Width Petal.Length Petal.Width   Species
#1          7.2         3.6          6.1         2.5 virginica
#2          7.7         3.8          6.7         2.2 virginica
#3          7.2         3.2          6.0         1.8 virginica
#4          7.9         3.8          6.4         2.0 virginica

Let’s take a look at two other options, both of which requires only one line as long as the setting is configured appropriately.

do.call(rbind, c(lapply(lst, fn), make.row.names = F))
#  Sepal.Length Sepal.Width Petal.Length Petal.Width   Species
#1          7.2         3.6          6.1         2.5 virginica
#2          7.7         3.8          6.7         2.2 virginica
#3          7.2         3.2          6.0         1.8 virginica
#4          7.9         3.8          6.4         2.0 virginica
do.call(rbind, c((Vectorize(fn, SIMPLIFY = F)) (lst), make.row.names = F))
#  Sepal.Length Sepal.Width Petal.Length Petal.Width   Species
#1          7.2         3.6          6.1         2.5 virginica
#2          7.7         3.8          6.7         2.2 virginica
#3          7.2         3.2          6.0         1.8 virginica
#4          7.9         3.8          6.4         2.0 virginica

Modeling Frequency Outcomes with Ordinal Models

When modeling frequency outcomes, we often need to go beyond the standard Poisson regression due to the strict distributional assumption and to consider more flexible alternatives. In general, there are two broad categories of modeling approaches in light of practical concerns about frequency outcomes.

The first category of models are mainly intended to address the excessive variance, namely over-dispersion, and are including hurdle, zero-inflated Poisson, and latent class Poisson models (https://statcompute.wordpress.com/2012/11/03/another-class-of-risk-models). This class of models assume the mixture of distributions and often require to estimate multiple sets of parameters for different distributions, which might lead to other potential issues, such as variable selection, estimation convergence, or model interpretation. For instance, the hurdle model consists of a logistic regression and a truncated Poisson regression and therefore requires two sets of parameters.

The second category of models are more general to accommodate both over-dispersion and under-dispersion by incorporating complicated variance functions and are including generalized Poisson, double Poisson, hyper-Poisson, and Conway-Maxwell Poisson models (https://statcompute.wordpress.com/2016/11/27/more-about-flexible-frequency-models). This class of models require to simultaneously estimate both mean and variance functions with separate sets of parameters and often suffer from convergence difficulties in the model estimation. All four mentioned above are distributions with two parameters, on which mean and variance functions are jointly determined. Due to the complexity, these models are not even widely used in the industry.

In addition to above-mentioned models with the intention of directly addressing the variance issue, another possibility is to steer away from the problem by using ordinal models. As pointed out by Agresti (2010), “Even when the response variable is interval scale rather than ordered categorical, ordinal models can still be useful. One such case occurs when the response outcome is a count but when standard sampling models for counts, such as the Poisson, do not apply”. An example is that customers with many delinquencies are hardly observable in certain consumer banking portfolios. The similar is also true for insurance customers with a high count of auto claims. In both scenarios, upper limits for frequency outcomes have been enforced by industry practices or corporate policies, putting the application of frequency models in doubt. Additionally, the over-parameterization also makes complicated frequency models less attractive empirically. In such cases, ordinal models, such as Proportional Odds models, are worth considering.

The demonstration below will show how to estimate the frequency of major derogatory reports for credit card customers with a Proportional Odds model. Before the model estimation, it is helpful to examine the distribution of the response variable and shown that nearly 90% cardholders have no major derogatory and the maximum number of incidents is 6, implying that the standard Poisson regression might not be sufficient.

df <- read.csv("Downloads/credit_count.txt")
df1 <- df[which(df$CARDHLDR == 1), ]
freq <- table(df1$MAJORDRG)
#    0    1    2    3    4    5    6 
# 9361  855  220   47   13    2    1

Estimating an ordinal model for the frequency outcome is straightforward in R with the rms::orm function. In the model output, different intercepts are used to differentiate different levels of the frequency outcome. Therefore, there are 6 different intercepts in the Proportional Odds model to differentiate 7 levels of derogatory reports from 0 to 6. After the model estimation, we can aggregate the probability of each frequency outcome to derive the conditional distribution of derogatory reports.

Y <- "MAJORDRG"
X <- c("AGE", "ACADMOS", "ADEPCNT", "MINORDRG", "INCPER", "LOGSPEND")
fml <- as.formula(paste(Y, paste(X, collapse = " + "), sep = " ~ "))
m1 <- rms::orm(fml, data = df1, family = logistic)
m1.pred <- data.frame(predict(m1, type = "fitted.ind"))
dist1 <- sapply(m1.pred, sum)

For the comparison purpose, a standard Poisson regression is also estimated with the conditional distribution derived below.

m2 <- glm(fml, data = df1, family = poisson(link = "log"))
m2.pred <- predict(m2, type = "response")
dist2 <- apply(sapply(0:6, function(i) dpois(i, m2.pred)), 2, sum)

At last, we would compare the observed distribution with conditional distributions from two different models. From the distributional comparison, it is clear that the Proportional Odds model does a better job than the standard Poisson model. (Since the code can not be displayed correctly, I saved it as the image.)

Screenshot from 2018-09-10 22-41-42

Rplot

Playing Map() and Reduce() in R – Subsetting

In the previous post (https://statcompute.wordpress.com/2018/09/03/playing-map-and-reduce-in-r-by-group-calculation), I’ve shown how to employ the MapReduce when calculating by-group statistics. Actually, the same Divide-n-Conquer strategy can be applicable to other use cases, one of which is the subsetting operation.

In the example below, let’s still use the same iris data for the demonstration purpose. In R, the most convenient way to perform the subsetting might be the subset() function, which would search for rows meeting the condition described in the “expr” expression below throughout the entire data.frame.

data(iris)
expr = expression(Sepal.Length > 7 & Sepal.Width > 3)
subset(iris, eval(expr))

With the whole data.frame partitioned into multiple pieces, the row searching operation can perfectly fit into the MapReduce paradigm, as described in the logic flow below.
1. First of all, the iris data is divided into chunks with equal number of rows, e.g. two chunks in the example.
2. Next, a Map() function is used to perform the row searching operation within each chunk.
3. Upon the return of rows meeting the criteria from each chunk, a Reduce() function is employed to combine all outcomes together.

n <- 2
lst <- split(iris, sort((1:nrow(iris)) %% n))
Reduce(rbind, Map(function(x) x[with(x, which(eval(expr))), ], lst))

It is noted that the above map operation is still performed sequentially without leveraging the computing power of multiple CPUs. In the CPU usage, we can see that only one CPU is used and the rest are idle.

single_core

Similar to the by-group summary, the by-chunk operation of row searching doesn’t have to be in the sequential order and can be distributed simultaneously across multiple CPUs by using the mcMap() function, as outlined below.
1. Again, it starts with the data partition. However, there are two caveats in the example. Firstly, the data is split based upon the number of CPUs captured by the detectCores() function. Secondly, the partitioned data is NOT stored physically in the memory but reflected logically by a list of future abstractions, e.g. “flst” in the code snippet.
2. In the second step, the mcMap() function is used to evaluate each future abstraction, return the partitioned data, and then perform the row searching within each chunk.
3. At last, the Reduce() function collects and combines all outcomes.

pkgs <- c("parallel", "future")
mapply(function(x) require(x, character.only = T), pkgs)
n <- detectCores()
flst <- Map(function(x) future({x}), split(iris, sort((1:nrow(iris)) %% n)))
Reduce(rbind, mcMap(function(x) value(x)[with(value(x), which(eval(expr))), ], flst, mc.cores = n))

If we take a look at the CPU usage again, it is now shown that all CPUs are utilized.

multicore

Playing Map() and Reduce() in R – By-Group Calculation

Clojure is such an interesting programming language that it can not only enhance our skill set but also change the way how we should write the program. After learning Clojure, I can’t help thinking about how to employ the functional programming and MapReduce paradigm to improve our experience with other programming languages, e.g. R in my case.

When calculating the statistical summary in R, we would go straight to aggregate() or sqldf() function without a second thought. Such by-group calculations seem so simple that we often might not bother to think about the problem itself schematically. Let’s take a look at how to approach this problem in Clojure by using the code below that I copied from https://statcompute.wordpress.com/2018/03/18/do-we-really-need-dataframe-in-clojure.

(def country_sum
  (map (fn [[billingcountry total]]
    {:billiingcountry billingcountry :total (reduce + (map :total total))})
    (group-by :billingcountry inv)))

Although the code looks a little awkward with lots of parenthesis, the idea is very clear and makes sense. We first partition the data into multiple pieces based on groups that we’d like to summarize and then define an anonymous function to sum up the invoice amount, by using a reduce() function, that we used a map() function extracting from the original data, e.g. a list of maps in this case. The whole calculation logic is a loyal reflection of MapReduce.

Now let’s come back to R and think about how to re-frame the solution for the by-group calculation. Using data(iris) as an example, we should first partition the data.frame by “species” with split() so as to convert the data.frame into a list of data.frames by groups. If I apply the class() function to each item in the list “lst1”, we should be able to see three data.frames.

data(iris)
lst1 <- split(iris, iris$Species)
Map(class, lst1)
#$setosa
#[1] "data.frame"
#$versicolor
#[1] "data.frame"
#$virginica
#[1] "data.frame"

After the data partition, we can proceed to calculate the by-group summary with each data.frame in the list. Luckily enough, because the data.frame is generically constructed as a collection of columns instead of rows, we don’t need to use the map operation to extract values from corresponding rows. Instead, we can directly calculate the column summary based on each partitioned data.frame. As shown below, the code is straightforward yet flexible given the use of an anonymous function, which can be customized to accommodate any arbitrary calculation.

Map(function(x) data.frame(grp = unique(x$Species), sl_avg = mean(x$Sepal.Length), sw_avg = mean(x$Sepal.Width)), lst1)
#$setosa
#     grp sl_avg sw_avg
#1 setosa  5.006  3.428
#$versicolor
#         grp sl_avg sw_avg
#1 versicolor  5.936   2.77
#$virginica
#        grp sl_avg sw_avg
#1 virginica  6.588  2.974

Up to now, the problem has been successfully solved. However, if we have a closer look at the solution, it doesn’t take long for us to notice that the calculation in one group is completely orthogonal to the calculation in another group and therefore the by-group calculation doesn’t have to be in a sequential order. In addition, the partitioned data consumes significantly more memory than the original one, which is not an issue for small data sets but could be a potential concern for big data sets. After all, there is no need to have the data always stored in the memory, as long as it is available for us when needed.

To address the first observation, we would bring in the parallel computation by using the parallel::mcMap() function and kicking off multiple CPUs simultaneously. For the second concern, we can introduce the concept of Future, which is the abstraction for a data.frame instead of the data.frame physically stored in the memory. The future, once created with future::future() function, would remain unresolved until we want it to be resolved in the computation by using the future::value() function, at the computing cost for evaluating the future.

With everything put together, below is the final code with the parallel map and the future abstraction.

pkg <- list("parallel", "future")
mapply(function(x) require(x, character.only = T), pkg)
ft <- future({split(iris, iris$Species)})
mcMap(function(i) with(value(ft)[[i]], data.frame(grp = unique(Species), sl_avg = mean(Sepal.Length), sw_avg = mean(Sepal.Width))), 1:length(unique(iris$Species)), mc.cores = detectCores())
#[[1]]
#     grp sl_avg sw_avg
#1 setosa  5.006  3.428
#[[2]]
#         grp sl_avg sw_avg
#1 versicolor  5.936   2.77
#[[3]]
#        grp sl_avg sw_avg
#1 virginica  6.588  2.974

If we would like the output prettier, we could wrap the list into a nice-looking data.frame with a reduce operation by either Reduce(rbind, …) or do.call(rbind, …), where … is the final list from Map() or mcMap() shown above.

More Flexible Ordinal Outcome Models

In the previous post (https://statcompute.wordpress.com/2018/08/26/adjacent-categories-and-continuation-ratio-logit-models-for-ordinal-outcomes), we’ve shown alternative models for ordinal outcomes in addition to commonly used Cumulative Logit models under the proportional odds assumption, which are also known as Proportional Odds model. A potential drawback of Proportional Odds model is the lack of flexibility and the restricted assumption of proportional odds, of which the violation might lead to the model mis-specification. As a result, Cumulative Logit models with more flexible assumptions are called for.

In the example below, I will first show how to estimate credit ratings with a Cumulative Logit model under the proportional odds assumption with corporate financial performance measures, expressed as Logit(Y <= j) = A_j – X * B, where A_j depends on the category j.

pkgs <- list("maxLik", "VGAM")
sapply(pkgs, require, character.only = T)
data(data_cr, envir = .GlobalEnv, package = "mvord")
data_cr$RATING <- pmax(data_cr$rater1, data_cr$rater2, na.rm = T)
x <- c("LR", "LEV", "PR", "RSIZE", "BETA")
# LR   : LIQUIDITY RATIO
# LEV  : LEVERAGE RATIO
# PR   : PROFITABILITY RATIO
# RSIZE: LOG OF RELATIVE SIZE
# BETA : SYSTEMATIC RISK
y <- "RATING"
df <- data_cr[!is.na(data_cr[, y]), c(x, y)]
table(df[, y]) / length(df[, y])
#         A         B         C         D         E
# 0.1047198 0.1681416 0.3023599 0.2994100 0.1253687

### CUMULATIVE LOGIT MODEL ASSUMED PROPORTIONAL ODDS ###
# BELOW IS THE SIMPLER EQUIVALENT:
# vglm(RATING ~ LR + LEV + PR + RSIZE + BETA, data = df, family = cumulative(parallel = T))

ll1 <- function(param) {
  plist <- c("a_A", "a_B", "a_C", "a_D", "b_LR", "b_LE", "b_PR", "b_RS", "b_BE")
  sapply(1:length(plist), function(i) assign(plist[i], param[i], envir = .GlobalEnv))
  XB_A <- with(df, a_A - (b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_B <- with(df, a_B - (b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_C <- with(df, a_C - (b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_D <- with(df, a_D - (b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  prob_A <- 1 / (1 + exp(-XB_A))
  prob_B <- 1 / (1 + exp(-XB_B)) - prob_A
  prob_C <- 1 / (1 + exp(-XB_C)) - prob_A - prob_B
  prob_D <- 1 / (1 + exp(-XB_D)) - prob_A - prob_B - prob_C
  prob_E <- 1 - prob_A - prob_B - prob_C - prob_D
  CAT <- data.frame(sapply(c("A", "B", "C", "D", "E"), function(x) assign(x, df[, y] == x)))
  LH <- with(CAT, (prob_A ^ A) * (prob_B ^ B) * (prob_C ^ C) * (prob_D ^ D) * (prob_E ^ E))
  return(sum(log(LH)))
}

start1 <- c(a_A = 0, a_B = 2, a_C = 3, a_D = 4, b_LR = 0, b_LE = 0, b_PR = 0, b_RS = 0, b_BE = 0)
summary(m1 <- maxLik(logLik = ll1, start = start1))
#     Estimate Std. error t value Pr(t)
#a_A  15.53765    0.77215  20.123  <2e-16 ***
#a_B  18.26195    0.84043  21.729  <2e-16 ***
#a_C  21.61729    0.94804  22.802  <2e-16 ***
#a_D  25.88787    1.10522  23.423  <2e-16 ***
#b_LR  0.29070    0.11657   2.494  0.0126 *
#b_LE  0.83977    0.07220  11.631  <2e-16 ***
#b_PR -5.10955    0.35531 -14.381  <2e-16 ***
#b_RS -2.18552    0.09982 -21.895  <2e-16 ***
#b_BE  3.26811    0.21696  15.063  <2e-16 ***

In the above output, the attribute “liquidity ratio” is somewhat less significant than the other, implying a potential opportunity for further improvements by relaxing the proportional odds assumption. As a result, I will try a different class of Cumulative Logit models, namely (unconstrained) Partial-Proportional Odds models, that would allow non-proportional odds for a subset of model attributes, e.g. LR in our case. Therefore, the formulation now becomes Logit(Y <= j) = A_j – X * B – Z * G_j, where both A_j and G_j vary by the category j.

### CUMULATIVE LOGIT MODEL ASSUMED UNCONSTRAINED PARTIAL-PROPORTIONAL ODDS ###
# BELOW IS THE SIMPLER EQUIVALENT:
# vglm(RATING ~ LR + LEV + PR + RSIZE + BETA, data = df, family = cumulative(parallel = F ~ LR))

ll2 <- function(param) {
  plist <- c("a_A", "a_B", "a_C", "a_D", "b_LRA", "b_LRB", "b_LRC", "b_LRD", "b_LE", "b_PR", "b_RS", "b_BE")
  sapply(1:length(plist), function(i) assign(plist[i], param[i], envir = .GlobalEnv))
  XB_A <- with(df, a_A - (b_LRA * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_B <- with(df, a_B - (b_LRB * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_C <- with(df, a_C - (b_LRC * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_D <- with(df, a_D - (b_LRD * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  prob_A <- 1 / (1 + exp(-XB_A))
  prob_B <- 1 / (1 + exp(-XB_B)) - prob_A
  prob_C <- 1 / (1 + exp(-XB_C)) - prob_A - prob_B
  prob_D <- 1 / (1 + exp(-XB_D)) - prob_A - prob_B - prob_C
  prob_E <- 1 - prob_A - prob_B - prob_C - prob_D
  CAT <- data.frame(sapply(c("A", "B", "C", "D", "E"), function(x) assign(x, df[, y] == x)))
  LH <- with(CAT, (prob_A ^ A) * (prob_B ^ B) * (prob_C ^ C) * (prob_D ^ D) * (prob_E ^ E))
  return(sum(log(LH)))
}

start2 <- c(a_A = 0.1, a_B = 0.2, a_C = 0.3, a_D = 0.4, b_LRA = 0, b_LRB = 0, b_LRC = 0, b_LRD = 0, b_LE = 0, b_PR = 0, b_RS = 0, b_BE = 0)
summary(m2 <- maxLik(logLik = ll2, start = start2))
#Estimates:
#      Estimate Std. error t value Pr(t)
#a_A   15.30082    0.83936  18.229  <2e-16 ***
#a_B   18.14795    0.81325  22.315  <2e-16 ***
#a_C   21.72469    0.89956  24.150  <2e-16 ***
#a_D   25.92697    1.07749  24.062  <2e-16 ***
#b_LRA  0.12442    0.30978   0.402  0.6880
#b_LRB  0.21127    0.20762   1.018  0.3089
#b_LRC  0.36097    0.16687   2.163  0.0305 *
#b_LRD  0.31404    0.22090   1.422  0.1551
#b_LE   0.83949    0.07155  11.733  <2e-16 ***
#b_PR  -5.09891    0.35249 -14.465  <2e-16 ***
#b_RS  -2.18589    0.09540 -22.913  <2e-16 ***
#b_BE   3.26529    0.20993  15.554  <2e-16 ***

As shown above, under the partial-proportional odds assumption, there are 4 parameters estimated for LR, three of which are not significant and therefore the additional flexibility is not justified. In fact, AIC of the 2nd model (AIC = 1103.60) is even higher than AIC of the 1st model (AIC = 1098.18).

In light of the above observation, I will introduce the 3rd model, which is known as the Constrained Partial-Proportional Odds model and expressed as Logit(Y <= j) = A_j – X * B – Z * G * gamma_j, where A_j and gamma_j vary the category j. It is worth pointing out that gamma_j is a pre-specified fixed scalar and does not need to be estimated. Based on the unconstrained model outcome, we can set gamma_1 = 1, gamma_2 = 2, and gamma_3 = gamma_4 = 3 for LR in our case.

### CUMULATIVE LOGIT MODEL ASSUMED CONSTRAINED PARTIAL-PROPORTIONAL ODDS ###

ll3 <- function(param) {
  plist <- c("a_A", "a_B", "a_C", "a_D", "b_LR", "b_LE", "b_PR", "b_RS", "b_BE")
  sapply(1:length(plist), function(i) assign(plist[i], param[i], envir = .GlobalEnv))
  gamma <- c(1, 2, 3, 3)
  XB_A <- with(df, a_A - (gamma[1] * b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_B <- with(df, a_B - (gamma[2] * b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_C <- with(df, a_C - (gamma[3] * b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_D <- with(df, a_D - (gamma[4] * b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  prob_A <- 1 / (1 + exp(-XB_A))
  prob_B <- 1 / (1 + exp(-XB_B)) - prob_A
  prob_C <- 1 / (1 + exp(-XB_C)) - prob_A - prob_B
  prob_D <- 1 / (1 + exp(-XB_D)) - prob_A - prob_B - prob_C
  prob_E <- 1 - prob_A - prob_B - prob_C - prob_D
  CAT <- data.frame(sapply(c("A", "B", "C", "D", "E"), function(x) assign(x, df[, y] == x)))
  LH <- with(CAT, (prob_A ^ A) * (prob_B ^ B) * (prob_C ^ C) * (prob_D ^ D) * (prob_E ^ E))
  return(sum(log(LH)))
}

start3 <- c(a_A = 1, a_B = 2, a_C = 3, a_D = 4, b_LR = 0.1, b_LE = 0, b_PR = 0, b_RS = 0, b_BE = 0)
summary(m3 <- maxLik(logLik = ll3, start = start3))
#Estimates:
#     Estimate Std. error t value Pr(t)
#a_A  15.29442    0.60659  25.214 < 2e-16 ***
#a_B  18.18220    0.65734  27.660 < 2e-16 ***
#a_C  21.70599    0.75181  28.872 < 2e-16 ***
#a_D  25.98491    0.88104  29.493 < 2e-16 ***
#b_LR  0.11351    0.04302   2.638 0.00833 **
#b_LE  0.84012    0.06939  12.107 < 2e-16 ***
#b_PR -5.10025    0.33481 -15.233 < 2e-16 ***
#b_RS -2.18708    0.08118 -26.940 < 2e-16 ***
#b_BE  3.26689    0.19958  16.369 < 2e-16 ***

As shown above, after the introduction of gamma_j as the constrained scalar, the statistical significance of LR has been improved with a slightly lower AIC = 1097.64.

To be complete, I’d like to mention the last model today, which is named the Stereotype model. The idea of Stereotype models is very similar to the idea of adjacent-categories models and is to estimate Log(Y = j / Y = j+1) or more often Log(Y = j / Y = j_c), where C represents a baseline category. However, the right-hand side is expressed as Log(…) = A_j – (X * B) * phi_j, where phi_j is a hyper-parameter such that phi_1 = 1 > phi_2…> phi_max = 0. As a result, the coefficient of each model attribute could also vary by the category j, introducing more flexibility at the cost of being difficult to estimate.

### STEREOTYPE MODEL ###
# BELOW IS THE SIMPLER EQUIVALENT:
# rrvglm(sapply(c("A", "B", "C", "D", "E"), function(x) df[, y] == x)~ LR + LEV + PR + RSIZE + BETA, multinomial, data = df)

ll4 <- function(param) {
  plist <- c("a_A", "a_B", "a_C", "a_D", "b_LR", "b_LE", "b_PR", "b_RS", "b_BE", "phi_B", "phi_C", "phi_D")
  sapply(1:length(plist), function(i) assign(plist[i], param[i], envir = .GlobalEnv))
  XB_A <- with(df, a_A - (b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_B <- with(df, a_B - phi_B * (b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_C <- with(df, a_C - phi_C * (b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  XB_D <- with(df, a_D - phi_D * (b_LR * LR + b_LE * LEV + b_PR * PR + b_RS * RSIZE + b_BE * BETA))
  prob_A <- exp(XB_A) / (exp(XB_A) + exp(XB_B) + exp(XB_C) + exp(XB_D) + 1)
  prob_B <- exp(XB_B) / (exp(XB_A) + exp(XB_B) + exp(XB_C) + exp(XB_D) + 1)
  prob_C <- exp(XB_C) / (exp(XB_A) + exp(XB_B) + exp(XB_C) + exp(XB_D) + 1)
  prob_D <- exp(XB_D) / (exp(XB_A) + exp(XB_B) + exp(XB_C) + exp(XB_D) + 1)
  prob_E <- 1 - prob_A - prob_B - prob_C - prob_D
  CAT <- data.frame(sapply(c("A", "B", "C", "D", "E"), function(x) assign(x, df[, y] == x)))
  LH <- with(CAT, (prob_A ^ A) * (prob_B ^ B) * (prob_C ^ C) * (prob_D ^ D) * (prob_E ^ E))
  return(sum(log(LH)))
}

start4 <- c(a_A = 1, a_B = 2, a_C = 3, a_D = 4, b_LR = 0.1, b_LE = 0, b_PR = 0, b_RS = 0, b_BE = 0, phi_B = 0.1, phi_C = 0.2, phi_D = 0.3)
summary(m4 <- maxLik(logLik = ll4, start = start4))
#Estimates:
#       Estimate Std. error t value Pr(t)
#a_A    67.73429    2.37424  28.529  <2e-16 ***
#a_B    55.86469    1.94442  28.731  <2e-16 ***
#a_C    41.27477    1.47960  27.896  <2e-16 ***
#a_D    22.24244    1.83137  12.145  <2e-16 ***
#b_LR    0.86975    0.37481   2.320  0.0203 *
#b_LE    2.79215    0.23373  11.946  <2e-16 ***
#b_PR  -16.66836    1.17569 -14.178  <2e-16 ***
#b_RS   -7.24921    0.33460 -21.665  <2e-16 ***
#b_BE   10.57411    0.72796  14.526  <2e-16 ***
#phi_B   0.77172    0.03155  24.461  <2e-16 ***
#phi_C   0.52806    0.03187  16.568  <2e-16 ***
#phi_D   0.26040    0.02889   9.013  <2e-16 ***

Adjacent-Categories and Continuation-Ratio Logit Models for Ordinal Outcomes

In the previous post (https://statcompute.wordpress.com/2018/01/28/modeling-lgd-with-proportional-odds-model), I’ve shown how to estimate a standard Cumulative Logit model with the ordinal::clm function and its use case in credit risk models. To better a better illustration of the underlying logic, an example is also provided below, showing how to estimate a Cumulative Logit model by specifying the log likelihood function.

pkgs <- list("maxLik", "VGAM")
sapply(pkgs, require, character.only = T)
df <- read.csv("Downloads/lgd.csv")
df$lgd_cat <- ifelse(round(1 - df[2], 4) == 0, "L",
                ifelse(round(1 - df[2], 4) == 1, "H", "M"))

### DEFINE LOGLIKELIHOOD FUNCTION OF CUMULATIVE LOGIT MODEL ###
# BELOW IS THE SIMPLER EQUIVALENT:
# vglm(sapply(c("L", "M", "H"), function(x) df$lgd_cat == x) ~ LTV, data = df, family = cumulative(parallel = T))

ll01 <- function(param) {
  a1 <- param[1]
  a2 <- param[2]
  b1 <- param[3]
  xb_L <- a1 - df$LTV * b1
  xb_M <- a2 - df$LTV * b1
  prob_L <- exp(xb_L) / (1 + exp(xb_L))
  prob_M <- exp(xb_M) / (1 + exp(xb_M)) - prob_L
  prob_H <- 1 - prob_M - prob_L
  CAT <- data.frame(sapply(c("L", "M", "H"), function(x) assign(x, df$lgd_cat == x)))
  LH <- with(CAT, (prob_L ^ L) * (prob_M ^ M) * (prob_H ^ H))
  return(sum(log(LH)))
}

Instead of modeling the cumulative probability of each ordered category such that Log(Prob <= Y_i / (1 – Prob <= Y_i)) = Alpha_i – XB, we could also have alternative ways to estimate the categorical probabilities by using Adjacent-Categories Logit and Continuation-Ratio Logit models.

In an Adjacent-Categories Logit model, the functional form can be expressed as Log(Prob = Y_i / Prob = Y_j) = Alpha_i – XB with j = i + 1. The corresponding log likelihood function is given in the code snippet below.

### DEFINE LOGLIKELIHOOD FUNCTION OF ADJACENT-CATEGORIES LOGIT MODEL ###
# BELOW IS THE SIMPLER EQUIVALENT:
# vglm(sapply(c("L", "M", "H"), function(x) df$lgd_cat == x) ~ LTV, data = df, family = acat(parallel = T, reverse = T))

ll02 <- function(param) {
  a1 <- param[1]
  a2 <- param[2]
  b1 <- param[3]
  xb_L <- a1 - df$LTV * b1
  xb_M <- a2 - df$LTV * b1
  prob_H <- 1 / (1 + exp(xb_M) + exp(xb_M + xb_L))
  prob_M <- exp(xb_M) * prob_H
  prob_L <- 1 - prob_H - prob_M
  CAT <- data.frame(sapply(c("L", "M", "H"), function(x) assign(x, df$lgd_cat == x)))
  LH <- with(CAT, (prob_L ^ L) * (prob_M ^ M) * (prob_H ^ H))
  return(sum(log(LH)))
}

If we take the probability (Prob = Y_i) from the Adjacent-Categories Logit and the probability (Prob > Y_i) from the Cumulative Logit, then we can have the functional form of a Continuation-Ratio Logit model, expressed as Log(Prob = Y_i / Prob > Y_i) = Alpha_i – XB. The log likelihood function is also provided.

### DEFINE LOGLIKELIHOOD FUNCTION OF CONTINUATION-RATIO LOGIT MODEL ###
# BELOW IS THE SIMPLER EQUIVALENT:
# vglm(sapply(c("L", "M", "H"), function(x) df$lgd_cat == x) ~ LTV, data = df, family = cratio(parallel = T, reverse = F))

ll03 <- function(param) {
  a1 <- param[1]
  a2 <- param[2]
  b1 <- param[3]
  xb_L <- a1 - df$LTV * b1
  xb_M <- a2 - df$LTV * b1
  prob_L <- 1 / (1 + exp(-xb_L))
  prob_M <- 1 / (1 + exp(-xb_M)) * (1 - prob_L)
  prob_H <- 1 - prob_L - prob_M
  CAT <- data.frame(sapply(c("L", "M", "H"), function(x) assign(x, df$lgd_cat == x)))
  LH <- with(CAT, (prob_L ^ L) * (prob_M ^ M) * (prob_H ^ H))
  return(sum(log(LH)))
}

After specifying log likelihood functions for aforementioned models, we can use the maxLik::maxLik() function to calculate parameter estimates. It is also shown that, in this particular example, the Cumulative Logit is slightly better than the other alternatives in terms of AIC.

# start = c(a1 = 0.1, a2 = 0.2, b1 = 1.0)
# lapply(list(ll01, ll02, ll03), (function(x) summary(maxLik(x, start = start))))

[[1]]
--------------------------------------------
Estimates:
   Estimate Std. error t value  Pr(t)    
a1  0.38134    0.08578   4.446 8.76e-06 ***
a2  4.50145    0.14251  31.587  < 2e-16 ***
b1  2.07768    0.12506  16.613  < 2e-16 ***
--------------------------------------------
[[2]]
--------------------------------------------
Estimates:
   Estimate Std. error t value  Pr(t)    
a1  0.32611    0.08106   4.023 5.74e-05 ***
a2  4.05859    0.14827  27.373  < 2e-16 ***
b1  1.88466    0.11942  15.781  < 2e-16 ***
--------------------------------------------
[[3]]
--------------------------------------------
Estimates:
   Estimate Std. error t value  Pr(t)    
a1  0.30830    0.08506   3.625 0.000289 ***
a2  4.14021    0.15024  27.558  < 2e-16 ***
b1  1.95643    0.12444  15.722  < 2e-16 ***
--------------------------------------------

# sapply(list(ll01, ll02, ll03), (function(x) AIC(maxLik(x, start = start))))
3764.110 3767.415 3771.373

Ordered Probit Model and Price Movements of High-Frequency Trades

The analysis of high frequency stock transactions has played an important role in the algorithmic trading and the result can be used to monitor stock movements and to develop trading strategies. In the paper “An Ordered Probit Analysis of Transaction Stock Prices” (1992), Hausman, Lo, and MacKinlay discussed estimating trade-by-trade stock price changes with the ordered probit model by incorporating potential model drivers, including previous price changes, trading volumes, and the time between consecutive trades. Following the same logic, Tsay demonstrated how to employ the ordered probit model to project price movements of high frequency stock trades in his book “An Introduction to Analysis of Financial Data with R” (2013).

The exercise below is simply to mimic the analysis shown in the chapter 6 of Tsay’s book. Please note that the output of rms::orm() function slightly differs from the one of MASS::polr() used in the book due to the different parameterization. Otherwise, results are largely consistent.


cat = read.table("Downloads/chap6/taq-cat-t-jan042010.txt", header = T)

### CALCULATE PRICE DIFFERENCE ###
pchg = cat$price[2:nrow(cat)] - cat$price[1:nrow(cat) - 1]

### CATEGORIES PRICE CHANGE ###
cchg = as.factor(memisc::cases((pchg  1, 
                               (pchg >= -0.01 & pchg  2, 
                               (pchg == 0) -> 3, 
                               (pchg > 0 & pchg  4, 
                               (pchg > 0.01) -> 5))

### PLOT HISTOGRAM OF PRICE CHANGES ###
barplot(table(cchg) / length(cchg), space = 0, col = "gray", border = NA, main = "Distribution of Price Changes", xlab = "Price Movements")

hist

From the histogram above, it is interesting to see that the distribution of price movements looks very symmetrical and centering around the zero and that price changes for consecutive trades are mostly within the range of 1 – 2 cents.


y_raw = pchg[4:length(cchg)]
y = cchg[4:length(cchg)]

### CREATE LAGGED Y AS MODEL PREDICTORS ###
y1 = cchg[3:(length(y) + 2)]
y2 = cchg[2:(length(y) + 1)]

### CREATE LAGGED PRICE CHANGES AS MODEL PREDICTORS ###
pch1 = pchg[3:(length(y) + 2)]
pch2 = pchg[2:(length(y) + 1)]
pch3 = pchg[1:length(y)]

### CREATE LAGGED TRADING VOLUME AS MODEL PREDICTORS ###
vol1 = cat$size[4:(3 + length(y))] / 100
vol2 = cat$size[3:(2 + length(y))] / 100

### CREATE LAGGED SECONDS BETWEEN TRADES AS MODEL PREDICTORS ###
cat$time = strptime(paste(sprintf("%02d", cat$hour), sprintf("%02d", cat$minute), sprintf("%02d", cat$second), sep = ':'), "%H:%M:%S")
tdif = as.numeric(difftime(cat$time[-1], cat$time[-length(cat$time)]))
tdif1 = tdif[3:(length(y) + 2)]
tdif2 = tdif[2:(length(y) + 1)]

df = data.frame(y, y1, y2, vol1, vol2, tdif1, tdif2, pch1, pch2, pch3)

### VOL1 / TDIF1 / TDIF2 ARE NOT SIGNIFICANT ###
m1 = rms::orm(y ~ y1 + y2 + pch1 + pch2 + pch3 + vol1 + vol2 + tdif1 + tdif2, data = df, family = probit)
#       Coef     S.E.   Wald Z Pr(>|Z|)
# vol1    0.0011 0.0012   0.88 0.3775  
# tdif1  -0.0030 0.0034  -0.88 0.3783  
# tdif2  -0.0018 0.0035  -0.52 0.6058

### REFIT THE MODEL WITH SIGNIFICANT DRIVERS ###
m2 = update(m1, y ~ y1 + y2 + pch1 + pch2 + pch3 + vol2)

### PREDICT PROBABILITY OF EACH CATEGORY ###
head(predict(m1, type = "fitted.ind"), 3)
#          y=1        y=2       y=3        y=4         y=5
#1 0.017586540 0.08172596 0.6655605 0.17209486 0.063032101
#2 0.098890397 0.22135286 0.6180407 0.05228561 0.009430461
#3 0.001268321 0.01270428 0.4104822 0.30700447 0.268540702

### PREDICT CUMULATIVE PROBABILITY OF EACH CATEGORY ###
head(predict(m2, type = "fitted"), 3)
#       y>=2      y>=3       y>=4        y>=5
#1 0.9824135 0.9006875 0.23512696 0.063032101
#2 0.9011096 0.6797567 0.06171607 0.009430461
#3 0.9987317 0.9860274 0.57554517 0.268540702

### MODEL ACCURACY ASSESSMENT FOR PREDICTING PRICE INCREASES ###
pROC::roc(ifelse(y_raw > 0, 1, 0), predict(m2, type = "fitted")[, 3])
# Area under the curve: 0.6994

par(mfrow = c(2, 1))
ts.plot(y_raw, main = "Price Changes", ylab = "Price Changes")
ts.plot(predict(m2, type = "fitted")[, 3], main = "Probability of Price Increase", ylab = "Probability")

cat

Co-integration and Pairs Trading

The co-integration is an important statistical concept behind the statistical arbitrage strategy named “Pairs Trading”. While projecting a stock price with time series models is by all means difficult, it is technically feasible to find a pair of (or even a portfolio of) stocks sharing the common trend such that a linear combination of two series is stationary, which is so-called co-integration. The underlying logic of Pairs Trading is to monitor movements of co-integrated stocks and to look for trading opportunities when the divergence presents. Under the mean-reversion assumption, the stock price would tend to move back to the long-term equilibrium. As a result, the spread between two co-integrated stock prices would eventually converge. Furthermore, given the stationarity of the spread between co-integrated stocks, it becomes possible to forecast such spread with time series models.

Below shows a R utility function helping to identify pairwise co-integrations based upon the Johansen Test out of a arbitrary number of stock prices provided in a list of tickers.

For instance, based on a starting date on 2010/01/01 and a list of tickers for major US banks, we are able to identify 23 pairs of co-integrated stock prices out of 78 pairwise combinations. It is interesting to see that stock prices of two regional players, e.g. Fifth Third and M&T, are highly co-integrated, as visualized in the chart below.


pkgs <- list("quantmod", "doParallel", "foreach", "urca")
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 4)

jtest <- function(t1, t2) {
  start <- sd
  getSymbols(t1, from = start)
  getSymbols(t2, from = start)
  j <- summary(ca.jo(cbind(get(t1)[, 6], get(t2)[, 6])))
  r <- data.frame(stock1 = t1, stock2 = t2, stat = j@teststat[2])
  r[, c("pct10", "pct5", "pct1")] <- j@cval[2, ]
  return(r)
}

pair <- function(lst) {
  d2 <- data.frame(t(combn(lst, 2)))
  stat <- foreach(i = 1:nrow(d2), .combine = rbind) %dopar% jtest(as.character(d2[i, 1]), as.character(d2[i, 2]))
  stat <- stat[order(-stat$stat), ]
  # THE PIECE GENERATING * CAN'T BE DISPLAYED PROPERLY IN WORDPRESS 
  rownames(stat) <- NULL
  return(stat)
}

sd <- "2010-01-01"
tickers <- c("FITB", "BBT", "MTB", "STI", "PNC", "HBAN", "CMA", "USB", "KEY", "JPM", "C", "BAC", "WFC")
pair(tickers)

   stock1 stock2      stat pct10 pct5  pct1 coint
1     STI    JPM 27.207462 12.91 14.9 19.19  ***
2    FITB    MTB 21.514142 12.91 14.9 19.19  ***
3     MTB    KEY 20.760885 12.91 14.9 19.19  ***
4    HBAN    KEY 19.247719 12.91 14.9 19.19  ***
5       C    BAC 18.573168 12.91 14.9 19.19   **
6    HBAN    JPM 18.019051 12.91 14.9 19.19   **
7    FITB    BAC 17.490536 12.91 14.9 19.19   **
8     PNC   HBAN 16.959451 12.91 14.9 19.19   **
9    FITB    BBT 16.727097 12.91 14.9 19.19   **
10    MTB   HBAN 15.852456 12.91 14.9 19.19   **
11    PNC    JPM 15.822610 12.91 14.9 19.19   **
12    CMA    BAC 15.685086 12.91 14.9 19.19   **
13   HBAN    BAC 15.446149 12.91 14.9 19.19   **
14    BBT    MTB 15.256334 12.91 14.9 19.19   **
15    MTB    JPM 15.178646 12.91 14.9 19.19   **
16    BBT   HBAN 14.808770 12.91 14.9 19.19    *
17    KEY    BAC 14.576440 12.91 14.9 19.19    *
18   FITB    JPM 14.272424 12.91 14.9 19.19    *
19    STI    BAC 14.253971 12.91 14.9 19.19    *
20   FITB    PNC 14.215647 12.91 14.9 19.19    *
21    MTB    BAC 13.891615 12.91 14.9 19.19    *
22    MTB    PNC 13.668863 12.91 14.9 19.19    *
23    KEY    JPM 12.952239 12.91 14.9 19.19    *

Screenshot from 2018-07-29 16-55-27

Screenshot from 2018-07-29 15-09-11

Mimicking SQLDF with MonetDBLite

Like many useRs, I am also a big fan of the sqldf package developed by Grothendieck, which uses SQL statement for data frame manipulations with SQLite embedded database as the default back-end.

In examples below, I drafted a couple R utility functions with the MonetDBLite back-end by mimicking the sqldf function. There are several interesting observations shown in the benchmark comparison.
– The data import for csv data files is more efficient with MonetDBLite than with the generic read.csv function or read.csv.sql function in the sqldf package.
– The data manipulation for a single data frame, such as selection, aggregation, and subquery, is also significantly faster with MonetDBLite than with the sqldf function.
– However, the sqldf function is extremely efficient in joining 2 data frames, e.g. inner join in the example.


# IMPORT
monet.read.csv <- function(file) {
  monet.con <- DBI::dbConnect(MonetDBLite::MonetDBLite(), ":memory:")
  suppressMessages(MonetDBLite::monetdb.read.csv(monet.con, file, "file", sep = ","))
  result <- DBI::dbReadTable(monet.con, "file")
  DBI::dbDisconnect(monet.con, shutdown = T)
  return(result)  
}

microbenchmark::microbenchmark(monet = {df <- monet.read.csv("Downloads/nycflights.csv")}, times = 10)
#Unit: milliseconds
#  expr      min       lq     mean   median       uq      max neval
# monet 528.5378 532.5463 539.2877 539.0902 542.4301 559.1191    10

microbenchmark::microbenchmark(read.csv = {df <- read.csv("Downloads/nycflights.csv")}, times = 10)
#Unit: seconds
#     expr      min       lq     mean   median       uq      max neval
# read.csv 2.310238 2.338134 2.360688 2.343313 2.373913 2.444814    10

# SELECTION AND AGGREGATION
monet.sql <- function(df, sql) {
  df_str <- deparse(substitute(df))
  monet.con <- DBI::dbConnect(MonetDBLite::MonetDBLite(), ":memory:")  
  suppressMessages(DBI::dbWriteTable(monet.con, df_str, df, overwrite = T))
  result <- DBI::dbGetQuery(monet.con, sql)
  DBI::dbDisconnect(monet.con, shutdown = T)
  return(result)
}

microbenchmark::microbenchmark(monet = {monet.sql(df, "select * from df sample 3")}, times = 10)
#Unit: milliseconds
#  expr     min      lq     mean   median       uq     max neval
# monet 422.761 429.428 439.0438 438.3503 447.3286 453.104    10

microbenchmark::microbenchmark(sqldf = {sqldf::sqldf("select * from df order by RANDOM() limit 3")}, times = 10)
#Unit: milliseconds
#  expr      min      lq     mean   median       uq      max neval
# sqldf 903.9982 908.256 925.4255 920.2692 930.0934 963.6983    10

microbenchmark::microbenchmark(monet = {monet.sql(df, "select origin, median(distance) as med_dist from df group by origin")}, times = 10)
#Unit: milliseconds
#  expr      min       lq     mean   median       uq      max neval
# monet 450.7862 456.9589 458.6389 458.9634 460.4402 465.2253    10

microbenchmark::microbenchmark(sqldf = {sqldf::sqldf("select origin, median(distance) as med_dist from df group by origin")}, times = 10)
#Unit: milliseconds
#  expr      min       lq    mean   median       uq      max neval
# sqldf 833.1494 836.6816 841.952 843.5569 846.8117 851.0771    10

microbenchmark::microbenchmark(monet = {monet.sql(df, "with df1 as (select dest, avg(distance) as dist from df group by dest), df2 as (select dest, count(*) as cnts from df group by dest) select * from df1 inner join df2 on (df1.dest = df2.dest)")}, times = 10)
#Unit: milliseconds
#  expr      min       lq    mean   median       uq     max neval
# monet 426.0248 431.2086 437.634 438.4718 442.8799 451.275    10

microbenchmark::microbenchmark(sqldf = {sqldf::sqldf("select * from (select dest, avg(distance) as dist from df group by dest) df1 inner join (select dest, count(*) as cnts from df group by dest) df2 on (df1.dest = df2.dest)")}, times = 10)
#Unit: seconds
#  expr      min       lq     mean   median       uq      max neval
# sqldf 1.013116 1.017248 1.024117 1.021555 1.025668 1.048133    10

# MERGE 
monet.sql2 <- function(df1, df2, sql) {
  df1_str <- deparse(substitute(df1))
  df2_str <- deparse(substitute(df2))
  monet.con <- DBI::dbConnect(MonetDBLite::MonetDBLite(), ":memory:")  
  suppressMessages(DBI::dbWriteTable(monet.con, df1_str, df1, overwrite = T))
  suppressMessages(DBI::dbWriteTable(monet.con, df2_str, df2, overwrite = T))
  result <- DBI::dbGetQuery(monet.con, sql)
  DBI::dbDisconnect(monet.con, shutdown = T)
  return(result)
}

tbl1 <- monet.sql(df, "select dest, avg(distance) as dist from df group by dest")
tbl2 <- monet.sql(df, "select dest, count(*) as cnts from df group by dest")

microbenchmark::microbenchmark(monet = {monet.sql2(tbl1, tbl2, "select * from tbl1 inner join tbl2 on (tbl1.dest = tbl2.dest)")}, times = 10)
#Unit: milliseconds
#  expr      min       lq     mean  median       uq      max neval
# monet 93.94973 174.2211 170.7771 178.487 182.4724 187.3155    10

microbenchmark::microbenchmark(sqldf = {sqldf::sqldf("select * from tbl1 inner join tbl2 on (tbl1.dest = tbl2.dest)")}, times = 10)
#Unit: milliseconds
#  expr      min       lq     mean median       uq      max neval
# sqldf 19.49334 19.60981 20.29535 20.001 20.93383 21.51837    10

MLE with General Optimization Functions in R

In my previous post (https://statcompute.wordpress.com/2018/02/25/mle-in-r/), it is shown how to estimate the MLE based on the log likelihood function with the general-purpose optimization algorithm, e.g. optim(), and that the optimizer is more flexible and efficient than wrappers in statistical packages.

A benchmark comparison are given below showing the use case of other general optimizers commonly used in R, including optim(), nlm(), nlminb(), and ucminf(). Since these optimizers are normally designed to minimize the objective function, we need to add a minus (-) sign to the log likelihood function that we want to maximize, as shown in the minLL() function below. In addition, in order to speed up the optimization process, we can suppress the hessian in the function call. If indeed the hessian is required to calculate standard errors of estimated parameters, it can be calculated by calling the hessian() function in the numDeriv package.

As shown in the benchmark result, although the ucminf() is the most efficient optimization function, a hessian option can increase the computing time by 70%. In addition, in the second fastest nlminb() function, there is no built-in option to output the hessian. Therefore, sometimes it might be preferable to estimate model parameters first and then calculate the hessian afterwards for the analysis purpose, as demonstrated below.


df <- read.csv("Downloads/credit_count.txt")

### DEFINE THE OBJECTIVE FUNCTION ###
minLL <- function(par) {
  mu <- exp(par[1] + par[2] * df$AGE + par[3] * df$ACADMOS + par[4] * df$MINORDRG + par[5] * df$OWNRENT)
  return(ll <- -sum(log(exp(-mu) * (mu ^ df$MAJORDRG) / factorial(df$MAJORDRG))))
}

### BENCHMARKING ###
import::from("rbenchmark", "benchmark")
benchmark(replications = 10, order = "elapsed", relative = "elapsed",
	      columns = c("test", "replications", "elapsed", "relative"),
  optim   = {optim(par = rep(0, 5), fn = minLL, hessian = F)},	
  nlm     = {nlm(f = minLL, p = rep(0, 5), hessian = F)},
  nlminb  = {nlminb(start = rep(0, 5), objective = minLL)},
  ucminf  = {ucminf::ucminf(par = rep(0, 5), fn = minLL, hessian = 0)},
  hessian = {ucminf::ucminf(par = rep(0, 5), fn = minLL, hessian = 1)}
)
#      test replications elapsed relative
# 4  ucminf           10   4.044    1.000
# 3  nlminb           10   6.444    1.593
# 5 hessian           10   6.973    1.724
# 2     nlm           10   8.292    2.050
# 1   optim           10  12.027    2.974

### HOW TO CALCULATE THE HESSIAN ###
fit <- nlminb(start = rep(0, 5), objective = minLL)
import::from("numDeriv", "hessian")
std <- sqrt(diag(solve(hessian(minLL, fit$par))))
est <- data.frame(beta = fit$par, stder = std, z_values = fit$par / std)
#           beta        stder   z_values
# 1 -1.379324501 0.0438155970 -31.480217
# 2  0.010394876 0.0013645030   7.618068
# 3  0.001532188 0.0001956843   7.829894
# 4  0.461129515 0.0068557359  67.261856
# 5 -0.199393808 0.0283222704  -7.040177

It is worth mentioning that, although these general optimizers are fast, they are less user-friendly than wrappers in statistical packages, such as mle or maxLik. For instance, we have to calculate AIC or BIC based on the log likelihood function or p-values based on Z-scores.

Read Random Rows from A Huge CSV File

Given R data frames stored in the memory, sometimes it is beneficial to sample and examine the data in a large-size csv file before importing into the data frame. To the best of my knowledge, there is no off-shelf R function performing such data sampling with a relatively low computing cost. Therefore, I drafted two utility functions serving this particular purpose, one with the LaF library and the other with the reticulate library by leveraging the power of Python. While the first function is more efficient and samples 3 records out of 336,776 in about 100 milliseconds, the second one is more for fun and a showcase of the reticulate package.


library(LaF)

sample1 <- function(file, n) {
  lf <- laf_open(detect_dm_csv(file, sep = ",", header = TRUE, factor_fraction = -1))
  return(read_lines(lf, sample(1:nrow(lf), n)))
}

sample1("Downloads/nycflights.csv", 3)
#   year month day dep_time dep_delay arr_time arr_delay carrier tailnum flight
# 1 2013     9  15     1323        -6     1506       -23      MQ  N857MQ   3340
# 2 2013     3  18     1657        -4     2019         9      UA  N35271     80
# 3 2013     6   7     1325        -4     1515       -11      9E  N8477R   3867
#   origin dest air_time distance hour minute
# 1    LGA  DTW       82      502   13     23
# 2    EWR  MIA      157     1085   16     57
# 3    EWR  CVG       91      569   13     25

library(reticulate)

sample2 <- function(file, n) {
  rows <- py_eval(paste("sum(1 for line in open('", file, "'))", sep = '')) - 1
  return(import("pandas")$read_csv(file, skiprows = setdiff(1:rows, sample(1:rows, n))))
}

sample2("Downloads/nycflights.csv", 3)
#   year month day dep_time dep_delay arr_time arr_delay carrier tailnum flight
# 1 2013    10   9      812        12     1010       -16      9E  N902XJ   3507
# 2 2013     4  30     1218       -10     1407       -30      EV  N18557   4091
# 3 2013     8  25     1111        -4     1238       -27      MQ  N721MQ   3281
#   origin dest air_time distance hour minute
# 1    JFK  MSY      156     1182    8     12
# 2    EWR  IND       92      645   12     18
# 3    LGA  CMH       66      479   11     11

LogRatio Regression – A Simple Way to Model Compositional Data

The compositional data are proportionals of mutually exclusive groups that would be summed up to the unity. Statistical models for compositional data have been applicable in a number of areas, e.g. the product or channel mix in the marketing research and asset allocations of a investment portfolio.

In the example below, I will show how to model compositional outcomes with a simple LogRatio regression. The underlying idea is very simple. With the D-dimension outcome [p_1, p_2…p_D], we can derive a [D-1]-dimension outcome [log(p_2 / p_1)…log(p_D / p_1)] and then estimate a multivariate regression based on the new outcome.

df = get("ArcticLake", envir = asNamespace('DirichletReg'))

#   sand  silt  clay depth
#1 0.775 0.195 0.030  10.4
#2 0.719 0.249 0.032  11.7
#3 0.507 0.361 0.132  12.8

lm(cbind(log(silt / sand), log(clay / sand)) ~ depth, data = df)

#Response log(silt/sand):
#Coefficients:
#             Estimate Std. Error t value Pr(>|t|)
#(Intercept) -0.649656   0.236733  -2.744   0.0093 **
#depth        0.037522   0.004269   8.790 1.36e-10 ***
#
#Response log(clay/sand) :
#Coefficients:
#             Estimate Std. Error t value Pr(>|t|)
#(Intercept) -2.614897   0.421383  -6.206 3.31e-07 ***
#depth        0.062181   0.007598   8.184 8.00e-10 ***

Since log(x / y) = log(x) – log(y), we can also estimate the model with log(sand) as an offset term.


lm(cbind(log(silt), log(clay)) ~ depth + offset(log(sand)), data = df)

#Response log(silt) :
#Coefficients:
#             Estimate Std. Error t value Pr(>|t|)
#(Intercept) -0.649656   0.236733  -2.744   0.0093 **
#depth        0.037522   0.004269   8.790 1.36e-10 ***
#
#Response log(clay) :
#Coefficients:
#             Estimate Std. Error t value Pr(>|t|)
#(Intercept) -2.614897   0.421383  -6.206 3.31e-07 ***
#depth        0.062181   0.007598   8.184 8.00e-10 ***

Alternatively, we can also use the comp.reg function in the Compositional package.


Compositional::comp.reg(as.matrix(df[, 1:3]), df[, 4])

#$be
#                   [,1]        [,2]
#(Intercept) -0.64965598 -2.61489731
#x            0.03752186  0.06218069
#
#$seb
#                   [,1]        [,2]
#(Intercept) 0.236733203 0.421382652
#x           0.004268588 0.007598043

Clojure Integration with R


(require '[tnoda.rashinban :as rr]
         '[tnoda.rashinban.core :as rc]
         '[clojure.core.matrix.dataset :as dt]
         '[clojure.core.matrix.impl.dataset :as id])

;; CREATE A TOY DATA
(def ds [{:id 1.0 :name "name1"}
         {:id 2.0 :name "name2"}
         {:id 3.0 :name "name3"}])

;; RUN THE FOLLOWING R CODE IN ADVANCE TO START THE RSERVE SERVER:
;;   R -e 'library(Rserve)' -e 'Rserve(args = "--vanilla")'
;; IF YOU HAVE LITTLER INSTALLED, BELOW ALSO WORKS:
;;   r -e 'library(Rserve); Rserve(args = "--vanilla")'  
(rr/init)

;; PASS THE DATA FROM CLOJURE INTO R
(map (fn [x] (rr/<- (name (key x)) (val x))) 
  (let [ks ((comp keys first) ds)] (zipmap ks (map #(map % ds) ks))))

(rr/<- 'header (map name ((comp keys first) ds)))
         
;; CREATE THE R DATA.FRAME         
(rc/eval "df = data.frame(lapply(header, as.name))")

;; TEST THE R DATA.FRAME
(rc/eval "df$id")
; [1.0 2.0 3.0]

(rc/eval "df$name")
; ["name1" "name2" "name3"]

;; CONVERT THE R DATA.FRAME BACK TO THE CLOJURE MAP
(def mp (into [] (map #(zipmap (map keyword (rr/colnames 'df)) %) 
                   (partition (count (rr/colnames 'df)) (apply interleave (rr/matrix 'df))))))

; [{:id 1.0, :name "name1"} {:id 2.0, :name "name2"} {:id 3.0, :name "name3"}]

;; TEST THE EQUALITY BETWEEN INPUT AND OUTPUT DATA
(= mp ds)
; true

;; ALTERNATIVELY, WE CAN ALSO CONVERT THE R DATA.FRAME TO A CLOJURE DATASET
(def dt (id/dataset-from-columns (map keyword (rr/colnames 'df)) (rr/matrix 'df)))

; #dataset/dataset {:column-names [:id :name], :columns [[1.0 2.0 3.0] ["name1" "name2" "name3"]], :shape [3 2]}

;; NEXT, CONVERT THE DATASET TO THE MAP
(def mp2 (dt/row-maps dt))

; [{:id 1.0, :name "name1"} {:id 2.0, :name "name2"} {:id 3.0, :name "name3"}]

(= ds mp2)
; true

MLE in R

When I learned and experimented a new model, I always like to start with its likelihood function in order to gain a better understanding about the statistical nature. That’s why I extensively used the SAS/NLMIXED procedure that gives me more flexibility. Today, I spent a couple hours playing the optim() function and its wrappers, e.g. mle() and mle2(), in case that I might need a replacement for my favorite NLMIXED in the model estimation. Overall, I feel that the optim() is more flexible. The named list required by the mle() or mle2() for initial values of parameters is somewhat cumbersome without additional benefits. As shown in the benchmark below, the optim() is the most efficient.


library(COUNT)
library(stats4)
library(bbmle)
data(rwm1984)
attach(rwm1984)

### OPTIM() ###
LogLike1 <- function(par) {
  xb <- par[1] + par[2] * outwork + par[3] * age + par[4] * female + par[5] * married 
  mu <- exp(xb)
  ll <- sum(log(exp(-mu) * (mu ^ docvis) / factorial(docvis)))
  return(-ll)
}
fit1 <- optim(rep(0, 5), LogLike1, hessian = TRUE, method = "BFGS")
std1 <- sqrt(diag(solve(fit1$hessian)))
est1 <- data.frame(beta = fit1$par, stder = stder1, z_values = fit1$par / stder1)
#         beta        stder  z_values
#1 -0.06469676 0.0433207574 -1.493436
#2  0.27264177 0.0214085110 12.735205
#3  0.02283541 0.0008394589 27.202540
#4  0.27461355 0.0210597539 13.039732
#5 -0.11804504 0.0217745647 -5.421236

### MLE() ###
LogLike2 <- function(b0, b1, b2, b3, b4) {
  mu <- exp(b0 + b1 * outwork + b2 * age + b3 * female + b4 * married)
  -sum(log(exp(-mu) * (mu ^ docvis) / factorial(docvis)))
}
inits <- list(b0 = 0, b1 = 0, b2 = 0, b3 = 0, b4 = 0)
fit2 <- mle(LogLike2, method = "BFGS", start = inits)
std2 <- sqrt(diag(vcov(fit2)))
est2 <- data.frame(beta = coef(fit2), stder = std2, z_values = coef(fit2) / std2)
#          beta        stder  z_values
#b0 -0.06469676 0.0433417474 -1.492712
#b1  0.27264177 0.0214081592 12.735414
#b2  0.02283541 0.0008403589 27.173407
#b3  0.27461355 0.0210597350 13.039744
#b4 -0.11804504 0.0217746108 -5.421224

### BENCHMARKS ###
microbenchmark::microbenchmark(
  "optim" = {optim(rep(0, 5), LogLike1, hessian = TRUE, method = "BFGS")},
  "mle"   = {mle(LogLike2, method = "BFGS", start = inits)},
  "mle2"  = {mle2(LogLike2, method = "BFGS", start = inits)},
  times = 10
)
#  expr      min       lq     mean   median       uq      max neval
# optim 280.4829 280.7902 296.9538 284.5886 318.6975 320.5094    10
#   mle 283.6701 286.3797 302.9257 289.8849 327.1047 328.6255    10
#  mle2 387.1912 390.8239 407.5090 392.8134 427.0569 467.0013    10

R Interfaces to Python Keras Package

Keras is a popular Python package to do the prototyping for deep neural networks with multiple backends, including TensorFlow, CNTK, and Theano. Currently, there are two R interfaces that allow us to use Keras from R through the reticulate package. While the keras R package is able to provide a flexible and feature-rich API, the kerasR R package is more convenient and computationally efficient. For instance, in the below example mimicking the Python code shown in https://statcompute.wordpress.com/2017/01/02/dropout-regularization-in-deep-neural-networks, the kerasR package is at least 10% faster than the keras package in terms of the computing time.


df <- read.csv("credit_count.txt")
Y <- matrix(df[df$CARDHLDR == 1, ]$DEFAULT)
X <- scale(df[df$CARDHLDR == 1, ][3:14])
set.seed(2018)
rows <- sample(1:nrow(Y), nrow(Y) - 2000)
Y1 <- Y[rows, ]
Y2 <- Y[-rows, ]
X1 <- X[rows, ]
X2 <- X[-rows, ]

### USE KERAS PACKAGE (https://keras.rstudio.com) ###

library(keras)
dnn1 % 
  ### DEFINE THE INPUT LAYER ###
  layer_dense(units = 50, activation = 'relu', input_shape = ncol(X), kernel_constraint = constraint_maxnorm(4)) %>% 
  layer_dropout(rate = 0.2, seed = 1) %>% 
  ### DEFINE THE 1ST HIDDEN LAYER ###
  layer_dense(units = 20, activation = 'relu', kernel_constraint = constraint_maxnorm(4)) %>% 
  layer_dropout(rate = 0.2, seed = 1) %>% 
  ### DEFINE THE 2ND HIDDEN LAYER ###
  layer_dense(units = 20, activation = 'relu', kernel_constraint = constraint_maxnorm(4)) %>% 
  layer_dropout(rate = 0.2, seed = 1) %>% 
  layer_dense(units = 1, activation = 'sigmoid') %>% 
  compile(loss = 'binary_crossentropy', optimizer = 'sgd', metrics = c('accuracy'))

dnn1 %>% fit(X1, Y1, batch_size = 50, epochs = 20, verbose = 0, validation_split = 0.3)
pROC::roc(as.numeric(Y2), as.numeric(predict_proba(dnn1, X2)))

### USE KERAS PACKAGE (https://github.com/statsmaths/kerasR) ###

library(kerasR)
dnn2 <- Sequential()
### DEFINE THE INPUT LAYER ###
dnn2$add(Dense(units = 50, input_shape = ncol(X), activation = 'relu', kernel_constraint = max_norm(4)))
dnn2$add(Dropout(rate = 0.2, seed = 1))
### DEFINE THE 1ST HIDDEN LAYER ###
dnn2$add(Dense(units = 20, activation = 'relu', kernel_constraint = max_norm(4)))
dnn2$add(Dropout(rate = 0.2, seed = 1))
### DEFINE THE 2ND HIDDEN LAYER ###
dnn2$add(Dense(units = 20, activation = 'relu', kernel_constraint = max_norm(4)))
dnn2$add(Dropout(rate = 0.2, seed = 1))
dnn2$add(Dense(units = 1, activation = 'sigmoid'))
keras_compile(dnn2,  loss = 'binary_crossentropy', optimizer = 'sgd', metrics = 'accuracy')

keras_fit(dnn2, X1, Y1, batch_size = 50, epochs = 20, verbose = 0, validation_split = 0.3)
pROC::roc(as.numeric(Y2), as.numeric(keras_predict_proba(dnn2, X2)))

Additional Thoughts on Estimating LGD with Proportional Odds Model

In my previous post (https://statcompute.wordpress.com/2018/01/28/modeling-lgd-with-proportional-odds-model), I’ve discussed how to use Proportional Odds Models in the LGD model development. In particular, I specifically mentioned that we would estimate a sub-model, which can be Gamma or Simplex regression, to project the conditional mean for LGD values in the (0, 1) range. However, it is worth pointing out that, if we would define a finer LGD segmentation, the necessity of this sub-model is completely optional. A standalone Proportional Odds Model without any sub-model is more than sufficient to serve the purpose of stress testing, e.g. CCAR.

In the example below, I will define 5 categories based upon LGD values in the [0, 1] range, estimate a Proportional Odds Model as usual, and then demonstrate how to apply the model outcome in the setting of stress testing with the stressed model input, e.g. LTV.

First of all, I defined 5 instead of 3 categories for LGD values, as shown below. Nonetheless, we could use a even finer category definition in practice to achieve a more accurate outcome.


df <- read.csv("lgd.csv")
df$lgd <- round(1 - df$Recovery_rate, 4)
l1 <- c(-Inf, 0, 0.0999, 0.4999, 0.9999, Inf)
l2 <- c("A", "B", "C", "D", "E")
df$lgd_cat <- cut(df$lgd, breaks = l1, labels = l2, ordered_result = T)
summary(df$lgd_cat)
m1 <- ordinal::clm(lgd_cat ~ LTV, data = df)
#Coefficients:
#    Estimate Std. Error z value Pr(>|z|)    
#LTV   2.3841     0.1083   22.02   <2e-16 ***
#
#Threshold coefficients:
#    Estimate Std. Error z value
#A|B  0.54082    0.07897   6.848
#B|C  2.12270    0.08894  23.866
#C|D  3.18098    0.10161  31.307
#D|E  4.80338    0.13174  36.460

After the model estimation, it is straightforward to calculate the probability of each LGD category. The only question remained is how to calculate the LGD projection for each individual account as well as for the whole portfolio. In order to calculate the LGD projection, we need two factors, namely the probability and the expected mean of each LGD category, such that

Estimated_LGD = SUM_i [Prob(category i) * LGD_Mean(category i)], where i = A, B, C, D, and E in this particular case.

The calculation is shown below with the estimated LGD = 0.23 that is consistent with the actual LGD = 0.23 for the whole portfolio.


prob_A <- exp(df$LTV * (-m1$beta) + m1$Theta[1]) / (1 + exp(df$LTV * (-m1$beta) + m1$Theta[1])) 
prob_B <- exp(df$LTV * (-m1$beta) + m1$Theta[2]) / (1 + exp(df$LTV * (-m1$beta) + m1$Theta[2])) - prob_A
prob_C <- exp(df$LTV * (-m1$beta) + m1$Theta[3]) / (1 + exp(df$LTV * (-m1$beta) + m1$Theta[3])) - prob_A - prob_B
prob_D <- exp(df$LTV * (-m1$beta) + m1$Theta[4]) / (1 + exp(df$LTV * (-m1$beta) + m1$Theta[4])) - prob_A - prob_B - prob_C
prob_E <- 1 - exp(df$LTV * (-m1$beta) + m1$Theta[4]) / (1 + exp(df$LTV * (-m1$beta) + m1$Theta[4]))
pred <- data.frame(prob_A, prob_B, prob_C, prob_D, prob_E)
sum(apply(pred, 2, mean) * aggregate(df['lgd'], df['lgd_cat'], mean)[2])
#[1] 0.2262811

One might be wondering how to apply the model outcome with simple averages in stress testing that the model input is stressed, e.g. more severe, and might be also concerned about the lack of model sensitivity. In the demonstration below, let’s stress the model input LTV by 50% and then evaluate the stressed LGD.


df$LTV_ST <- df$LTV * 1.5
prob_A <- exp(df$LTV_ST * (-m1$beta) + m1$Theta[1]) / (1 + exp(df$LTV_ST * (-m1$beta) + m1$Theta[1])) 
prob_B <- exp(df$LTV_ST * (-m1$beta) + m1$Theta[2]) / (1 + exp(df$LTV_ST * (-m1$beta) + m1$Theta[2])) - prob_A
prob_C <- exp(df$LTV_ST * (-m1$beta) + m1$Theta[3]) / (1 + exp(df$LTV_ST * (-m1$beta) + m1$Theta[3])) - prob_A - prob_B
prob_D <- exp(df$LTV_ST * (-m1$beta) + m1$Theta[4]) / (1 + exp(df$LTV_ST * (-m1$beta) + m1$Theta[4])) - prob_A - prob_B - prob_C
prob_E <- 1 - exp(df$LTV_ST * (-m1$beta) + m1$Theta[4]) / (1 + exp(df$LTV_ST * (-m1$beta) + m1$Theta[4]))
pred_ST <- data.frame(prob_A, prob_B, prob_C, prob_D, prob_E)
sum(apply(pred_ST, 2, mean) * aggregate(df['lgd'], df['lgd_cat'], mean)[2])
#[1] 0.3600153

As shown above, although we only use a simple averages as the expected mean for each LGD category, the overall LGD still increases by ~60%. The reason is that, with the more stressed model input, the Proportional Odds Model is able to push more accounts into categories with higher LGD. For instance, the output below shows that, if LTV is stressed by 50% overall, ~146% more accounts would roll into the most severe LGD category without any recovery.


apply(pred_ST, 2, mean) / apply(pred, 2, mean)
#   prob_A    prob_B    prob_C    prob_D    prob_E 
#0.6715374 0.7980619 1.0405573 1.4825803 2.4639293

Modeling LGD with Proportional Odds Model

The LGD model is an important component in the expected loss calculation. In https://statcompute.wordpress.com/2015/11/01/quasi-binomial-model-in-sas, I discussed how to model LGD with the quasi-binomial regression that is simple and makes no distributional assumption.

In the real-world LGD data, we usually would observe 3 ordered categories of values, including 0, 1, and in-betweens. In cases with a nontrivial number of 0 and 1 values, the ordered logit model, which is also known as Proportional Odds model, can be applicable. In the demonstration below, I will show how we can potentially use the proportional odds model in the LGD model development.

First of all, we need to categorize all numeric LGD values into three ordinal categories. As shown below, there are more than 30% of 0 and 1 values.

df <- read.csv("lgd.csv")
df$lgd <- round(1 - df$Recovery_rate, 4)
df$lgd_cat <- cut(df$lgd, breaks = c(-Inf, 0, 0.9999, Inf), labels = c("L", "M", "H"), ordered_result = T)
summary(df$lgd_cat)

#   L    M    H 
# 730 1672  143

The estimation of a proportional odds model is straightforward with clm() in the ordinal package or polr() in the MASS package. As demonstrated below, in addition to the coefficient for LTV, there are 2 intercepts to differentiate 3 categories.

m1 <- ordinal::clm(lgd_cat ~ LTV, data = df)
summary(m1)

#Coefficients:
#    Estimate Std. Error z value Pr(>|z|)    
#LTV   2.0777     0.1267    16.4   <2e-16 ***
#---
#Signif. codes:  0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
#
#Threshold coefficients:
#    Estimate Std. Error z value
#L|M  0.38134    0.08676   4.396
#M|H  4.50145    0.14427  31.201

It is important to point out that, in a proportional odds model, it is the cumulative probability that is derived from the linear combination of model variables. For instance, the cumulative probability of LGD belonging to L or M is formulated as

Prob(LGD <= M) = Exp(4.50 – 2.08 * LTV) / (1 + Exp(4.50 – 2.08 * LTV))

Likewise, we would have

Prob(LGD <= L) = Exp(0.38 – 2.08 * LTV) / (1 + Exp(0.38 – 2.08 * LTV))

With above cumulative probabilities, then we can calculate the probability of each category as below.

Prob(LGD = L) = Prob(LGD <= L)
Prob(LGD = M) = Prob(LGD <= M) – Prob(LGD <= L)
Prob(LGD = H) = 1 – Prob(LGD <= M)

The R code is showing the detailed calculation how to convert cumulative probabilities to probabilities of interest.

cumprob_L <- exp(df$LTV * (-m1$beta) + m1$Theta[1]) / (1 + exp(df$LTV * (-m1$beta) + m1$Theta[1])) 
cumprob_M <- exp(df$LTV * (-m1$beta) + m1$Theta[2]) / (1 + exp(df$LTV * (-m1$beta) + m1$Theta[2])) 
prob_L <- cumprob_L
prob_M <- cumprob_M - cumprob_L
prob_H <- 1 - cumprob_M
pred <- data.frame(prob_L, prob_M, prob_H)
apply(pred, 2, mean)

#    prob_L     prob_M     prob_H 
#0.28751210 0.65679888 0.05568903

After predicting the probability of each category, we would need another sub-model to estimate the conditional LGD for lgd_cat = “M” with either Beta or Simplex regression. (See https://statcompute.wordpress.com/2014/10/27/flexible-beta-modeling and https://statcompute.wordpress.com/2014/02/02/simplex-model-in-r) The final LGD prediction can be formulated as

E(LGD|X)
= Prob(Y = 0|X) * E(Y|X, Y = 0) + Prob(Y = 1|X) * E(Y|X, Y = 1) + Prob(0 < Y < 1|X) * E(Y|X, 0 < Y < 1)
= Prob(Y = 1|X) + Prob(0 < Y < 1|X) * E(Y|X, 0 < Y < 1)

where E(Y|X, 0 < Y < 1) can be calculated from the sub-model.

Model Non-Negative Numeric Outcomes with Zeros

As mentioned in the previous post (https://statcompute.wordpress.com/2017/06/29/model-operational-loss-directly-with-tweedie-glm/), we often need to model non-negative numeric outcomes with zeros in the operational loss model development. Tweedie GLM provides a convenient interface to model non-negative losses directly by assuming that aggregated losses are the Poisson sum of Gamma outcomes, which however might not be well supported empirically from the data generation standpoint.

In examples below, we demonstrated another flexible option, namely Zero-Adjusted (ZA) models, in both scenarios of modeling non-negative numeric outcomes, one with a small number of zeros and the other with a large number of zeros. The basic idea of ZA models is very intuitive and similar to the concept of Hurdle models for count outcomes. In a nutshell, non-negative numeric outcomes can be considered two data generation processes, one for point-mass at zeros and the other governed by a statistical distribution for positive outcomes. The latter could be either Gamma or Inverse Gaussian.

First of all, we sampled down an auto-claim data in a way that only 10 claims are zeros and the rest are all positive. While 10 is an arbitrary choice in the example, other small numbers should show similar results.

pkgs <- list("cplm", "gamlss", "MLmetrics")
lapply(pkgs, require, character.only = T)

data(AutoClaim, package = "cplm")
df1 <- na.omit(AutoClaim)

# SMALL NUMBER OF ZEROS
set.seed(2017)
smp <- sample(seq(nrow(df1[df1$CLM_AMT == 0, ])), size = 10, replace = FALSE)
df2 <- rbind(df1[df1$CLM_AMT > 0, ], df1[df1$CLM_AMT == 0, ][smp, ])

Next, we applied both Tweedie and zero-adjusted Gamma (ZAGA) models to the data with only 10 zero outcomes. It is worth mentioning that ZAGA doesn’t have to be overly complex in this case. As shown below, while we estimated the Gamma Mu parameter with model attributes, the Nu parameter to separate zeros is just a constant with the intercept = -5.4. Both Tweedie and GAZA models gave very similar estimated parameters and predictive measures with MAPE = 0.61.

tw <- cpglm(CLM_AMT ~ BLUEBOOK + NPOLICY, data = df2)
#              Estimate Std. Error t value Pr(>|t|)    
# (Intercept) 8.194e+00  7.234e-02 113.277  < 2e-16 ***
# BLUEBOOK    2.047e-05  3.068e-06   6.671 3.21e-11 ***
# NPOLICY     7.274e-02  3.102e-02   2.345   0.0191 *  

MAPE(df2$CLM_AMT, fitted(tw))
# 0.6053669

zaga0 <- gamlss(CLM_AMT ~ BLUEBOOK + NPOLICY, data = df2, family = "ZAGA")
# Mu Coefficients:
#              Estimate Std. Error t value Pr(>|t|)    
# (Intercept) 8.203e+00  4.671e-02 175.629  < 2e-16 ***
# BLUEBOOK    2.053e-05  2.090e-06   9.821  < 2e-16 ***
# NPOLICY     6.948e-02  2.057e-02   3.377 0.000746 ***
# Nu Coefficients:
#             Estimate Std. Error t value Pr(>|t|)    
# (Intercept)  -5.3886     0.3169     -17   <2e-16 ***

MAPE(df2$CLM_AMT, (1 - fitted(zaga0, what = "nu")) * fitted(zaga0, what = "mu"))
# 0.6053314

In the next case, we used the full data with a large number of zeros in the response and then applied both Tweedie and ZAGA models again. However, in ZAGA model, we estimated two sub-models this time, one for the Nu parameter to separate zeros from non-zeros and the other for the Mu parameter to model non-zero outcomes. As shown below, ZAGA outperformed Tweedie in terms of MAPE due to the advantage that ZAGA is able to explain two data generation schemes separately with different model attributes, which is the capability beyond what Tweedie can provide.

# LARGE NUMBER OF ZEROS
tw <- cpglm(CLM_AMT ~ BLUEBOOK + NPOLICY + CLM_FREQ5 + MVR_PTS + INCOME, data = df1)
#               Estimate Std. Error t value Pr(>|t|)    
# (Intercept)  6.854e+00  1.067e-01  64.241  < 2e-16 ***
# BLUEBOOK     1.332e-05  4.495e-06   2.963  0.00305 ** 
# NPOLICY      4.380e-02  3.664e-02   1.195  0.23196    
# CLM_FREQ5    2.064e-01  2.937e-02   7.026 2.29e-12 ***
# MVR_PTS      1.066e-01  1.510e-02   7.063 1.76e-12 ***
# INCOME      -4.606e-06  8.612e-07  -5.348 9.12e-08 ***

MAPE(df1$CLM_AMT, fitted(tw))
# 1.484484

zaga1 <- gamlss(CLM_AMT ~ BLUEBOOK + NPOLICY, nu.formula = ~(CLM_FREQ5 + MVR_PTS + INCOME), data = df1, family = "ZAGA")
# Mu Coefficients:
#              Estimate Std. Error t value Pr(>|t|)    
# (Intercept) 8.203e+00  4.682e-02 175.218  < 2e-16 ***
# BLUEBOOK    2.053e-05  2.091e-06   9.816  < 2e-16 ***
# NPOLICY     6.948e-02  2.067e-02   3.362 0.000778 ***
# Nu Coefficients:
#               Estimate Std. Error t value Pr(>|t|)    
# (Intercept)  1.153e+00  5.077e-02   22.72   <2e-16 ***
# CLM_FREQ5   -3.028e-01  2.283e-02  -13.26   <2e-16 ***
# MVR_PTS     -1.509e-01  1.217e-02  -12.41   <2e-16 ***
# INCOME       7.285e-06  6.269e-07   11.62   <2e-16 ***

MAPE(df1$CLM_AMT, (1 - fitted(zaga1, what = "nu")) * fitted(zaga1, what = "mu"))
# 1.470228

Given the great flexibility of ZA models, we also have the luxury to explore other candidates than ZAGA. For instance, if the positive part of non-negative outcomes demonstrates a high variance, we can also try a zero-inflated Inverse Gaussian (ZAIG) model, as shown below.

zaig1 <- gamlss(CLM_AMT ~ BLUEBOOK + NPOLICY, nu.formula = ~(CLM_FREQ5 + MVR_PTS + INCOME), data = df1, family = "ZAIG")
# Mu Coefficients:
#              Estimate Std. Error t value Pr(>|t|)    
# (Intercept) 8.205e+00  5.836e-02 140.591  < 2e-16 ***
# BLUEBOOK    2.163e-05  2.976e-06   7.268 3.97e-13 ***
# NPOLICY     5.898e-02  2.681e-02   2.200   0.0278 *  
# Nu Coefficients:
#               Estimate Std. Error t value Pr(>|t|)
# (Intercept)  1.153e+00  5.077e-02   22.72   <2e-16 ***
# CLM_FREQ5   -3.028e-01  2.283e-02  -13.26   <2e-16 ***
# MVR_PTS     -1.509e-01  1.217e-02  -12.41   <2e-16 ***
# INCOME       7.285e-06  6.269e-07   11.62   <2e-16 ***

MAPE(df1$CLM_AMT, (1 - fitted(zaig1, what = "nu")) * fitted(zaig1, what = "mu"))
# 1.469236

Variable Selection with Elastic Net

LASSO has been a popular algorithm for the variable selection and extremely effective with high-dimension data. However, it often tends to “over-regularize” a model that might be overly compact and therefore under-predictive.

The Elastic Net addresses the aforementioned “over-regularization” by balancing between LASSO and ridge penalties. In particular, a hyper-parameter, namely Alpha, would be used to regularize the model such that the model would become a LASSO in case of Alpha = 1 and a ridge in case of Alpha = 0. In practice, Alpha can be tuned easily by the cross-validation. Below is a demonstration of Elastic Net with R glmnet package and its comparison with LASSO and ridge models.

pkgs <- list("glmnet", "doParallel", "foreach", "pROC")
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 4)
 
df1 <- read.csv("Downloads/credit_count.txt")
df2 <- df1[df1$CARDHLDR == 1, ]
set.seed(2017)
n <- nrow(df2)
sample <- sample(seq(n), size = n * 0.5, replace = FALSE)
train <- df2[sample, -1]
test <- df2[-sample, -1]
mdlY <- as.factor(as.matrix(train["DEFAULT"]))
mdlX <- as.matrix(train[setdiff(colnames(df1), c("CARDHLDR", "DEFAULT"))])
newY <- as.factor(as.matrix(test["DEFAULT"]))
newX <- as.matrix(test[setdiff(colnames(df1), c("CARDHLDR", "DEFAULT"))])

First of all, we estimates a LASSO model with Alpha = 1. The function cv.glmnet() is used to search for a regularization parameter, namely Lambda, that controls the penalty strength. As shown below, the model only identifies 2 attributes out of total 12.

# LASSO WITH ALPHA = 1
cv1 <- cv.glmnet(mdlX, mdlY, family = "binomial", nfold = 10, type.measure = "deviance", paralle = TRUE, alpha = 1)
md1 <- glmnet(mdlX, mdlY, family = "binomial", lambda = cv1$lambda.1se, alpha = 1)
coef(md1)
#(Intercept) -1.963030e+00
#AGE          .           
#ACADMOS      .           
#ADEPCNT      .           
#MAJORDRG     .           
#MINORDRG     .           
#OWNRENT      .           
#INCOME      -5.845981e-05
#SELFEMPL     .           
#INCPER       .           
#EXP_INC      .           
#SPENDING     .           
#LOGSPEND    -4.015902e-02
roc(newY, as.numeric(predict(md1, newX, type = "response")))
#Area under the curve: 0.636

We next estimates a ridge model as below by setting Alpha = 0. Similarly, Lambda is searched by the cross-validation. Since the ridge penalty would only regularize the magnitude of each coefficient, we end up with a “full” model with all model attributes. The model performance is slightly better with 10 more variables, which is a debatable outcome.

# RIDGE WITH ALPHA = 0
cv2 <- cv.glmnet(mdlX, mdlY, family = "binomial", nfold = 10, type.measure = "deviance", paralle = TRUE, alpha = 0)
md2 <- glmnet(mdlX, mdlY, family = "binomial", lambda = cv2$lambda.1se, alpha = 0)
coef(md2)
#(Intercept) -2.221016e+00
#AGE         -4.184422e-04
#ACADMOS     -3.085096e-05
#ADEPCNT      1.485114e-04
#MAJORDRG     6.684849e-03
#MINORDRG     1.006660e-03
#OWNRENT     -9.082750e-03
#INCOME      -6.960253e-06
#SELFEMPL     3.610381e-03
#INCPER      -3.881890e-07
#EXP_INC     -1.416971e-02
#SPENDING    -1.638184e-05
#LOGSPEND    -6.213884e-03
roc(newY, as.numeric(predict(md2, newX, type = "response")))
#Area under the curve: 0.6435

At last, we use the Elastic Net by tuning the value of Alpha through a line search with the parallelism. In this particular case, Alpha = 0.3 is chosen through the cross-validation. As shown below, 6 variables are used in the model that even performs better than the ridge model with all 12 attributes.

# ELASTIC NET WITH 0 < ALPHA < 1
a <- seq(0.1, 0.9, 0.05)
search <- foreach(i = a, .combine = rbind) %dopar% {
  cv <- cv.glmnet(mdlX, mdlY, family = "binomial", nfold = 10, type.measure = "deviance", paralle = TRUE, alpha = i)
  data.frame(cvm = cv$cvm[cv$lambda == cv$lambda.1se], lambda.1se = cv$lambda.1se, alpha = i)
}
cv3 <- search[search$cvm == min(search$cvm), ]
md3 <- glmnet(mdlX, mdlY, family = "binomial", lambda = cv3$lambda.1se, alpha = cv3$alpha)
coef(md3)
#(Intercept) -1.434700e+00
#AGE         -8.426525e-04
#ACADMOS      .           
#ADEPCNT      .           
#MAJORDRG     6.276924e-02
#MINORDRG     .           
#OWNRENT     -2.780958e-02
#INCOME      -1.305118e-04
#SELFEMPL     .           
#INCPER      -2.085349e-06
#EXP_INC      .           
#SPENDING     .           
#LOGSPEND    -9.992808e-02
roc(newY, as.numeric(predict(md3, newX, type = "response")))
#Area under the curve: 0.6449

DART: Dropout Regularization in Boosting Ensembles

The dropout approach developed by Hinton has been widely employed in deep learnings to prevent the deep neural network from overfitting, as shown in https://statcompute.wordpress.com/2017/01/02/dropout-regularization-in-deep-neural-networks.

In the paper http://proceedings.mlr.press/v38/korlakaivinayak15.pdf, the dropout can also be used to address the overfitting in boosting tree ensembles, e.g. MART, caused by the so-called “over-specialization”. In particular, while first few trees added at the beginning of ensembles would dominate the model performance, the rest added later can only improve the prediction for a small subset, which increases the risk of overfitting. The idea of DART is to build an ensemble by randomly dropping boosting tree members. The percentage of dropouts can determine the degree of regularization for boosting tree ensembles.

Below is a demonstration showing the implementation of DART with the R xgboost package. First of all, after importing the data, we divided it into two pieces, one for training and the other for testing.

pkgs <- c('pROC', 'xgboost')
lapply(pkgs, require, character.only = T)
df1 <- read.csv("Downloads/credit_count.txt")
df2 <- df1[df1$CARDHLDR == 1, ]
set.seed(2017)
n <- nrow(df2)
sample <- sample(seq(n), size = n / 2, replace = FALSE)
train <- df2[sample, -1]
test <- df2[-sample, -1]

For the comparison purpose, we first developed a boosting tree ensemble without dropouts, as shown below. For the simplicity, all parameters were chosen heuristically. The max_depth is set to 3 due to the fact that the boosting tends to work well with so-called “weak” learners, e.g. simple trees. While ROC for the training set can be as high as 0.95, ROC for the testing set is only 0.60 in our case, implying the overfitting issue.

mart.parm <- list(booster = "gbtree", nthread = 4, eta = 0.1, max_depth = 3, subsample = 1, eval_metric = "auc")
mart <- xgboost(data = as.matrix(train[, -1]), label = train[, 1], params = mart.parm, nrounds = 500, verbose = 0, seed = 2017)
pred1 <- predict(mart, as.matrix(train[, -1]))
pred2 <- predict(mart, as.matrix(test[, -1]))
roc(as.factor(train$DEFAULT), pred1)
# Area under the curve: 0.9459
roc(as.factor(test$DEFAULT), pred2)
# Area under the curve: 0.6046

With the same set of parameters, we refitted the ensemble with dropouts, e.g. DART. As shown below, by dropping 10% tree members, ROC for the testing set can increase from 0.60 to 0.65. In addition, the performance disparity between training and testing sets with DART decreases significantly.

dart.parm <- list(booster = "dart", rate_drop = 0.1, nthread = 4, eta = 0.1, max_depth = 3, subsample = 1, eval_metric = "auc")
dart <- xgboost(data = as.matrix(train[, -1]), label = train[, 1], params = dart.parm, nrounds = 500, verbose = 0, seed = 2017)
pred1 <- predict(dart, as.matrix(train[, -1]))
pred2 <- predict(dart, as.matrix(test[, -1]))
roc(as.factor(train$DEFAULT), pred1)
# Area under the curve: 0.7734
roc(as.factor(test$DEFAULT), pred2)
# Area under the curve: 0.6517

Besides rate_drop = 0.1, a wide range of dropout rates have also been tested. In most cases, DART outperforms its counterpart without the dropout regularization.

Model Operational Losses with Copula Regression

In the previous post (https://statcompute.wordpress.com/2017/06/29/model-operational-loss-directly-with-tweedie-glm), it has been explained why we should consider modeling operational losses for non-material UoMs directly with Tweedie models. However, for material UoMs with significant losses, it is still beneficial to model the frequency and the severity separately.

In the prevailing modeling practice for operational losses, it is often convenient to assume a functional independence between frequency and severity models, which might not be the case empirically. For instance, in the economic downturn, both the frequency and the severity of consumer frauds might tend to increase simultaneously. With the independence assumption, while we can argue that same variables could be included in both frequency and severity models and therefore induce a certain correlation, the frequency-severity dependence and the its contribution to the loss distribution might be overlooked.

In the context of Copula, the distribution of operational losses can be considered a joint distribution determined by both marginal distributions and a parameter measuring the dependence between marginals, of which marginal distributions can be Poisson for the frequency and Gamma for the severity. Depending on the dependence structure in the data, various copula functions might be considered. For instance, a product copula can be used to describe the independence. In the example shown below, a Gumbel copula is considered given that it is often used to describe the positive dependence on the right tail, e.g. high severity and high frequency. For details, the book “Copula Modeling” by Trivedi and Zimmer is a good reference to start with.

In the demonstration, we simulated both frequency and severity measures driven by the same set of co-variates. Both are positively correlated with the Kendall’s tau = 0.5 under the assumption of Gumbel copula.

library(CopulaRegression)
# number of observations to simulate
n <- 100
# seed value for the simulation
set.seed(2017)
# design matrices with a constant column
X <- cbind(rep(1, n), runif(n), runif(n))
# define coefficients for both Poisson and Gamma regressions
p_beta <- g_beta <- c(3, -2, 1)
# define the Gamma dispersion
delta <- 1
# define the Kendall's tau
tau <- 0.5
# copula parameter based on tau
theta <- 1 / (1 - tau)
# define the Gumbel Copula 
family <- 4
# simulate outcomes
out <- simulate_regression_data(n, g_beta, p_beta, X, X, delta, tau, family, zt = FALSE)
G <- out[, 1]
P <- out[, 2]

After the simulation, a Copula regression is estimated with Poisson and Gamma marginals for the frequency and the severity respectively. As shown in the model estimation, estimated parameters with related inferences are different between independent and dependent assumptions.

m <- copreg(G, P, X, family = 4, sd.error = TRUE, joint = TRUE, zt = FALSE)
coef <- c("_CONST", "X1", "X2")
cols <- c("ESTIMATE", "STD. ERR", "Z-VALUE")
g_est <- cbind(m$alpha, m$sd.alpha, m$alpha / m$sd.alpha)
p_est <- cbind(m$beta, m$sd.beta, m$beta / m$sd.beta)
g_est0 <- cbind(m$alpha0, m$sd.alpha0, m$alpha0 / m$sd.alpha0)
p_est0 <- cbind(m$beta0, m$sd.beta0, m$beta0 / m$sd.beta0)
rownames(g_est) <- rownames(g_est0) <- rownames(p_est) <- rownames(p_est0) <- coef
colnames(g_est) <- colnames(g_est0) <- colnames(p_est) <- colnames(p_est0) <- cols

# estimated coefficients for the Gamma regression assumed dependence 
print(g_est)
#          ESTIMATE  STD. ERR   Z-VALUE
# _CONST  2.9710512 0.2303651 12.897141
# X1     -1.8047627 0.2944627 -6.129003
# X2      0.9071093 0.2995218  3.028526

# estimated coefficients for the Gamma regression assumed dependence 
print(p_est)
#         ESTIMATE   STD. ERR   Z-VALUE
# _CONST  2.954519 0.06023353  49.05107
# X1     -1.967023 0.09233056 -21.30414
# X2      1.025863 0.08254870  12.42736

# estimated coefficients for the Gamma regression assumed independence 
# should be identical to GLM() outcome
print(g_est0)
#         ESTIMATE  STD. ERR   Z-VALUE
# _CONST  3.020771 0.2499246 12.086727
# X1     -1.777570 0.3480328 -5.107478
# X2      0.905527 0.3619011  2.502140

# estimated coefficients for the Gamma regression assumed independence 
# should be identical to GLM() outcome
print(p_est0)
#         ESTIMATE   STD. ERR   Z-VALUE
# _CONST  2.939787 0.06507502  45.17536
# X1     -2.010535 0.10297887 -19.52376
# X2      1.088269 0.09334663  11.65837

If we compare conditional loss distributions under different dependence assumptions, it shows that the predicted loss with Copula regression tends to have a fatter right tail and therefore should be considered more conservative.

df <- data.frame(g = G, p = P, x1 = X[, 2], x2 = X[, 3])
glm_p <- glm(p ~ x1 + x2, data = df, family = poisson(log))
glm_g <- glm(g ~ x1 + x2, data = df, family = Gamma(log))
loss_dep <- predict(m, X, X, independence = FALSE)[3][[1]][[1]]
loss_ind <- fitted(glm_p) * fitted(glm_g)
den <- data.frame(loss = c(loss_dep, loss_ind), lines = rep(c("DEPENDENCE", "INDEPENDENCE"), each = n))
ggplot(den, aes(x = loss, fill = lines)) + geom_density(alpha = 0.5)

loss2

Model Operational Loss Directly with Tweedie GLM

In the development of operational loss forecasting models, the Frequency-Severity modeling approach, which the frequency and the severity of a Unit of Measure (UoM) are modeled separately, has been widely employed in the banking industry. However, sometimes it also makes sense to model the operational loss directly, especially for UoMs with non-material losses. First of all, given the low loss amount, the effort of developing two models, e.g. frequency and severity, might not be justified. Secondly, for UoMs with low losses due to low frequencies, modeling the frequency and the severity separately might overlook the internal connection between the low frequency and the subsequent low loss amount. For instance, when the frequency N = 0, then the loss L = $0 inevitably.

The Tweedie distribution is defined as a Poisson sum of Gamma random variables. In particular, if the frequency of loss events N is assumed a Poisson distribution and the loss amount L_i of an event i, where i = 0, 1 … N, is assumed a Gamma distribution, then the total loss amount L = SUM[L_i] would have a Tweedie distribution. When there is no loss event, e.g. N = 0, then Prob(L = $0) = Prob(N = 0) = Exp(-Lambda). However, when N > 0, then L = L_1 + … + L_N > $0 is governed by a Gamma distribution, e.g. sum of I.I.D. Gamma also being Gamma.

For the Tweedie loss, E(L) = Mu and VAR(L) = Phi * (Mu ** P), where P is called the index parameter and Phi is the dispersion parameter. When P approaches 1 and therefore VAR(L) approaches Phi * E(L), the Tweedie would be similar to a Poisson-like distribution. When P approaches 2 and therefore VAR(L) approaches Phi * (E(L) ** 2), the Tweedie would be similar to a Gamma distribution. When P is between 1 and 2, then the Tweedie would be a compound mixture of Poisson and Gamma, where P and Phi can be estimated.

To estimate a regression with the Tweedie distributional assumption, there are two implementation approaches in R with cplm and statmod packages respectively. With the cplm package, the Tweedie regression can be estimated directly as long as P is in the range of (1, 2), as shown below. In the example, the estimated index parameter P is 1.42.

> library(cplm)
> data(FineRoot)
> m1 <- cpglm(RLD ~ Zone + Stock, data = FineRoot)
> summary(m1)

Deviance Residuals: 
    Min       1Q   Median       3Q      Max  
-1.0611  -0.6475  -0.3928   0.1380   1.9627  

            Estimate Std. Error t value Pr(>|t|)    
(Intercept) -1.95141    0.14643 -13.327  < 2e-16 ***
ZoneOuter   -0.85693    0.13292  -6.447 2.66e-10 ***
StockMM106   0.01177    0.17535   0.067    0.947    
StockMark   -0.83933    0.17476  -4.803 2.06e-06 ***
---
Estimated dispersion parameter: 0.35092
Estimated index parameter: 1.4216 

Residual deviance: 203.91  on 507  degrees of freedom
AIC:  -157.33

The statmod package provides a more general and flexible solution with the two-stage estimation, which will estimate the P parameter first and then estimate regression parameters. In the real-world practice, we could do a coarse search to narrow down a reasonable range of P and then do a fine search to identify the optimal P value. As shown below, all estimated parameters are fairly consistent with ones in the previous example.

> library(tweedie)
> library(statmod)
> prof <- tweedie.profile(RLD ~ Zone + Stock, data = FineRoot, p.vec = seq(1.1, 1.9, 0.01), method = "series")
1.1 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.2 1.21 1.22 1.23 1.24 1.25 1.26 1.27 1.28 1.29 1.3 1.31 1.32 1.33 1.34 1.35 1.36 1.37 1.38 1.39 1.4 1.41 1.42 1.43 1.44 1.45 1.46 1.47 1.48 1.49 1.5 1.51 1.52 1.53 1.54 1.55 1.56 1.57 1.58 1.59 1.6 1.61 1.62 1.63 1.64 1.65 1.66 1.67 1.68 1.69 1.7 1.71 1.72 1.73 1.74 1.75 1.76 1.77 1.78 1.79 1.8 1.81 1.82 1.83 1.84 1.85 1.86 1.87 1.88 1.89 1.9 
.................................................................................Done.
> prof$p.max
[1] 1.426531
> m2 <- glm(RLD ~ Zone + Stock, data = FineRoot, family = tweedie(var.power = prof$p.max, link.power = 0))
> summary(m2)

Deviance Residuals: 
    Min       1Q   Median       3Q      Max  
-1.0712  -0.6559  -0.3954   0.1380   1.9728  

Coefficients:
            Estimate Std. Error t value Pr(>|t|)    
(Intercept) -1.95056    0.14667 -13.299  < 2e-16 ***
ZoneOuter   -0.85823    0.13297  -6.454 2.55e-10 ***
StockMM106   0.01204    0.17561   0.069    0.945    
StockMark   -0.84044    0.17492  -4.805 2.04e-06 ***
---
(Dispersion parameter for Tweedie family taken to be 0.4496605)

    Null deviance: 241.48  on 510  degrees of freedom
Residual deviance: 207.68  on 507  degrees of freedom
AIC: NA

GLM with H2O in R

Below is an example showing how to fit a Generalized Linear Model with H2O in R. The output is much more comprehensive than the one generated by the generic R glm().

> library(h2o)

> h2o.init(max_mem_size = "12g")

> df1 <- h2o.uploadFile("Documents/credit_count.txt", header = TRUE, sep = ",", parse_type = "CSV")

> df2 <- h2o.assign(df1[df1$CARDHLDR == 1, ], "glm_df")

> h2o.colnames(df2)
 [1] "CARDHLDR" "DEFAULT"  "AGE"      "ACADMOS"  "ADEPCNT"  "MAJORDRG"
 [7] "MINORDRG" "OWNRENT"  "INCOME"   "SELFEMPL" "INCPER"   "EXP_INC"
[13] "SPENDING" "LOGSPEND"

> Y <- "DEFAULT"

> X <- c("MAJORDRG", "MINORDRG", "INCOME", "OWNRENT")

> dist <- "binomial"

> link <- "logit"

> id <- "h2o_mdl01"

> mdl <- h2o.glm(X, Y, training_frame = h2o.getFrame("glm_df"), model_id = id, family = dist, link = link, lambda = 0, compute_p_values = TRUE, standardize = FALSE)

> show(h2o.getModel(id)@model$coefficients_table)
Coefficients: glm coefficients
      names coefficients std_error    z_value  p_value
1 Intercept    -1.204439  0.090811 -13.263121 0.000000
2  MAJORDRG     0.203135  0.069250   2.933370 0.003353
3  MINORDRG     0.202727  0.047971   4.226014 0.000024
4   OWNRENT    -0.201223  0.071619  -2.809636 0.004960
5    INCOME    -0.000442  0.000040 -10.942350 0.000000

> h2o.performance(h2o.getModel(id))
H2OBinomialMetrics: glm
** Reported on training data. **

MSE:  0.08414496
RMSE:  0.2900775
LogLoss:  0.3036585
Mean Per-Class Error:  0.410972
AUC:  0.6432189
Gini:  0.2864378
R^2:  0.02005004
Residual Deviance:  6376.221
AIC:  6386.221

Confusion Matrix (vertical: actual; across: predicted) for F1-optimal threshold:
          0    1    Error         Rate
0      7703 1800 0.189414   =1800/9503
1       630  366 0.632530     =630/996
Totals 8333 2166 0.231451  =2430/10499

Maximum Metrics: Maximum metrics at their respective thresholds
                        metric threshold    value idx
1                       max f1  0.126755 0.231499 142
2                       max f2  0.075073 0.376556 272
3                 max f0point5  0.138125 0.191828 115
4                 max accuracy  0.368431 0.905039   0
5                max precision  0.314224 0.250000   3
6                   max recall  0.006115 1.000000 399
7              max specificity  0.368431 0.999895   0
8             max absolute_mcc  0.126755 0.128940 142
9   max min_per_class_accuracy  0.106204 0.604546 196
10 max mean_per_class_accuracy  0.103730 0.605663 202

H2O Benchmark for CSV Import

The importFile() function in H2O is extremely efficient due to the parallel reading. The benchmark comparison below shows that it is comparable to the read.df() in SparkR and significantly faster than the generic read.csv().

library(SparkR, lib.loc = paste(Sys.getenv("SPARK_HOME"), "/R/lib", sep = ""))
sc <- sparkR.session(master = "local", sparkConfig = list(spark.driver.memory = "10g", spark.driver.cores = "4"))

library(h2o)
h2o.init(max_mem_size = "10g")

library(rbenchmark)

benchmark(replications = 5, order = "elapsed", relative = "elapsed",
   csv = {
          df <- read.csv("Documents/nycflights13.csv")
          print(nrow(df))
          rm(df)
         },
   spk = {
          df <- read.df("Documents/nycflights13.csv", source = "csv", header = "true", inferSchema = "true")
          print(nrow(df))
          rm(df)
         },
   h2o = {
          df <- h2o.importFile(path = "Documents/nycflights13.csv", header = TRUE, sep = ",")
          print(nrow(df))
          rm(df)
         }
 )

#   test replications elapsed relative user.self sys.self user.child sys.child
# 3  h2o            5   8.221    1.000     0.508    0.032          0         0
# 2  spk            5   9.822    1.195     0.008    0.004          0         0
# 1  csv            5  16.595    2.019    16.420    0.176          0         0

Using Tweedie Parameter to Identify Distributions

In the development of operational loss models, it is important to identify which distribution should be used to model operational risk measures, e.g. frequency and severity. For instance, why should we use the Gamma distribution instead of the Inverse Gaussian distribution to model the severity?

In my previous post https://statcompute.wordpress.com/2016/11/20/modified-park-test-in-sas, it is shown how to use the Modified Park test to identify the mean-variance relationship and then decide the corresponding distribution of operational risk measures. Following the similar logic, we can also leverage the flexibility of the Tweedie distribution to accomplish the same goal. Based upon the parameterization of a Tweedie distribution, the variance = Phi * (Mu ** P), where Mu is the mean and P is the power parameter. Depending on the specific value of P, the Tweedie distribution can accommodate several important distributions commonly used in the operational risk modeling, including Poisson, Gamma, Inverse Gaussian. For instance,

With P = 0, the variance would be independent of the mean, indicating a Normal distribution.
With P = 1, the variance would be in a linear form of the mean, indicating a Poisson-like distribution
With P = 2, the variance would be in a quadratic form of the mean, indicating a Gamma distribution.
With P = 3, the variance would be in a cubic form of the mean, indicating an Inverse Gaussian distribution.

In the example below, it is shown that the value of P is in the neighborhood of 1 for the frequency measure and is near 3 for the severity measure and that, given P closer to 3, the Inverse Gaussian regression would fit the severity better than the Gamma regression.

library(statmod)
library(tweedie)

profile1 <- tweedie.profile(Claim_Count ~ Age + Vehicle_Use, data = AutoCollision, p.vec = seq(1.1, 3.0, 0.1), fit.glm = TRUE)
print(profile1$p.max)
# [1] 1.216327
# The P parameter close to 1 indicates that the claim_count might follow a Poisson-like distribution

profile2 <- tweedie.profile(Severity ~ Age + Vehicle_Use, data = AutoCollision, p.vec = seq(1.1, 3.0, 0.1), fit.glm = TRUE)
print(profile2$p.max)
# [1] 2.844898
# The P parameter close to 3 indicates that the severity might follow an Inverse Gaussian distribution

BIC(glm(Severity ~ Age + Vehicle_Use, data = AutoCollision, family = Gamma(link = log)))
# [1] 360.8064

BIC(glm(Severity ~ Age + Vehicle_Use, data = AutoCollision, family = inverse.gaussian(link = log)))
# [1] 350.2504

Together with the Modified Park test, the estimation of P in a Tweedie distribution is able to help us identify the correct distribution employed in operational loss models in the context of GLM.

Finer Monotonic Binning Based on Isotonic Regression

In my early post (https://statcompute.wordpress.com/2017/01/22/monotonic-binning-with-smbinning-package/), I wrote a monobin() function based on the smbinning package by Herman Jopia to improve the monotonic binning algorithm. The function works well and provides robust binning outcomes. However, there are a couple potential drawbacks due to the coarse binning. First of all, the derived Information Value for each binned variable might tend to be low. Secondly, the binned variable might not be granular enough to reflect the data nature.

In light of the aforementioned, I drafted an improved function isobin() based on the isotonic regression (https://en.wikipedia.org/wiki/Isotonic_regression), as shown below.

isobin <- function(data, y, x) {
  d1 <- data[c(y, x)]
  d2 <- d1[!is.na(d1[x]), ]
  c <- cor(d2[, 2], d2[, 1], method = "spearman", use = "complete.obs")
  reg <- isoreg(d2[, 2], c / abs(c) * d2[, 1])
  k <- knots(as.stepfun(reg))
  sm1 <-smbinning.custom(d1, y, x, k)
  c1 <- subset(sm1$ivtable, subset = CntGood * CntBad > 0, select = Cutpoint)
  c2 <- suppressWarnings(as.numeric(unlist(strsplit(c1$Cutpoint, " "))))
  c3 <- c2[!is.na(c2)]
  return(smbinning.custom(d1, y, x, c3[-length(c3)]))
}

Compared with the legacy monobin(), the isobin() function is able to significantly increase the binning granularity as well as moderately improve the Information Value.

LTV Binning with isobin() Function

   Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds LnOdds     WoE     IV
1     <= 46     81      78      3        81         78         3 0.0139   0.9630  0.0370 26.0000 3.2581  1.9021 0.0272
2     <= 71    312     284     28       393        362        31 0.0535   0.9103  0.0897 10.1429 2.3168  0.9608 0.0363
3     <= 72     22      20      2       415        382        33 0.0038   0.9091  0.0909 10.0000 2.3026  0.9466 0.0025
4     <= 73     27      24      3       442        406        36 0.0046   0.8889  0.1111  8.0000 2.0794  0.7235 0.0019
5     <= 81    303     268     35       745        674        71 0.0519   0.8845  0.1155  7.6571 2.0356  0.6797 0.0194
6     <= 83    139     122     17       884        796        88 0.0238   0.8777  0.1223  7.1765 1.9708  0.6149 0.0074
7     <= 90    631     546     85      1515       1342       173 0.1081   0.8653  0.1347  6.4235 1.8600  0.5040 0.0235
8     <= 94    529     440     89      2044       1782       262 0.0906   0.8318  0.1682  4.9438 1.5981  0.2422 0.0049
9     <= 95    145     119     26      2189       1901       288 0.0248   0.8207  0.1793  4.5769 1.5210  0.1651 0.0006
10   <= 100    907     709    198      3096       2610       486 0.1554   0.7817  0.2183  3.5808 1.2756 -0.0804 0.0010
11   <= 101    195     151     44      3291       2761       530 0.0334   0.7744  0.2256  3.4318 1.2331 -0.1229 0.0005
12   <= 110   1217     934    283      4508       3695       813 0.2085   0.7675  0.2325  3.3004 1.1940 -0.1619 0.0057
13   <= 112    208     158     50      4716       3853       863 0.0356   0.7596  0.2404  3.1600 1.1506 -0.2054 0.0016
14   <= 115    253     183     70      4969       4036       933 0.0433   0.7233  0.2767  2.6143 0.9610 -0.3950 0.0075
15   <= 136    774     548    226      5743       4584      1159 0.1326   0.7080  0.2920  2.4248 0.8857 -0.4702 0.0333
16   <= 138     27      18      9      5770       4602      1168 0.0046   0.6667  0.3333  2.0000 0.6931 -0.6628 0.0024
17    > 138     66      39     27      5836       4641      1195 0.0113   0.5909  0.4091  1.4444 0.3677 -0.9882 0.0140
18  Missing      1       0      1      5837       4641      1196 0.0002   0.0000  1.0000  0.0000   -Inf    -Inf    Inf
19    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804 1.3559  0.0000 0.1897

LTV Binning with monobin() Function

  Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate   Odds LnOdds     WoE     IV
1    <= 85   1025     916    109      1025        916       109 0.1756   0.8937  0.1063 8.4037 2.1287  0.7727 0.0821
2    <= 94   1019     866    153      2044       1782       262 0.1746   0.8499  0.1501 5.6601 1.7334  0.3775 0.0221
3   <= 100   1052     828    224      3096       2610       486 0.1802   0.7871  0.2129 3.6964 1.3074 -0.0486 0.0004
4   <= 105    808     618    190      3904       3228       676 0.1384   0.7649  0.2351 3.2526 1.1795 -0.1765 0.0045
5   <= 114    985     748    237      4889       3976       913 0.1688   0.7594  0.2406 3.1561 1.1493 -0.2066 0.0076
6    > 114    947     665    282      5836       4641      1195 0.1622   0.7022  0.2978 2.3582 0.8579 -0.4981 0.0461
7  Missing      1       0      1      5837       4641      1196 0.0002   0.0000  1.0000 0.0000   -Inf    -Inf    Inf
8    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049 3.8804 1.3559  0.0000 0.1628

Bureau_Score Binning with isobin() Function

   Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds  LnOdds     WoE     IV
1    <= 491      4       1      3         4          1         3 0.0007   0.2500  0.7500  0.3333 -1.0986 -2.4546 0.0056
2    <= 532     24       9     15        28         10        18 0.0041   0.3750  0.6250  0.6000 -0.5108 -1.8668 0.0198
3    <= 559     51      24     27        79         34        45 0.0087   0.4706  0.5294  0.8889 -0.1178 -1.4737 0.0256
4    <= 560      2       1      1        81         35        46 0.0003   0.5000  0.5000  1.0000  0.0000 -1.3559 0.0008
5    <= 572     34      17     17       115         52        63 0.0058   0.5000  0.5000  1.0000  0.0000 -1.3559 0.0143
6    <= 602    153      84     69       268        136       132 0.0262   0.5490  0.4510  1.2174  0.1967 -1.1592 0.0459
7    <= 605     56      31     25       324        167       157 0.0096   0.5536  0.4464  1.2400  0.2151 -1.1408 0.0162
8    <= 606     14       8      6       338        175       163 0.0024   0.5714  0.4286  1.3333  0.2877 -1.0683 0.0035
9    <= 607     17      10      7       355        185       170 0.0029   0.5882  0.4118  1.4286  0.3567 -0.9993 0.0037
10   <= 632    437     261    176       792        446       346 0.0749   0.5973  0.4027  1.4830  0.3940 -0.9619 0.0875
11   <= 639    150      95     55       942        541       401 0.0257   0.6333  0.3667  1.7273  0.5465 -0.8094 0.0207
12   <= 653    451     300    151      1393        841       552 0.0773   0.6652  0.3348  1.9868  0.6865 -0.6694 0.0412
13   <= 662    295     213     82      1688       1054       634 0.0505   0.7220  0.2780  2.5976  0.9546 -0.4014 0.0091
14   <= 665    100      77     23      1788       1131       657 0.0171   0.7700  0.2300  3.3478  1.2083 -0.1476 0.0004
15   <= 667     57      44     13      1845       1175       670 0.0098   0.7719  0.2281  3.3846  1.2192 -0.1367 0.0002
16   <= 677    381     300     81      2226       1475       751 0.0653   0.7874  0.2126  3.7037  1.3093 -0.0466 0.0001
17   <= 679     66      53     13      2292       1528       764 0.0113   0.8030  0.1970  4.0769  1.4053  0.0494 0.0000
18   <= 683    160     129     31      2452       1657       795 0.0274   0.8062  0.1938  4.1613  1.4258  0.0699 0.0001
19   <= 689    203     164     39      2655       1821       834 0.0348   0.8079  0.1921  4.2051  1.4363  0.0804 0.0002
20   <= 699    304     249     55      2959       2070       889 0.0521   0.8191  0.1809  4.5273  1.5101  0.1542 0.0012
21   <= 707    312     268     44      3271       2338       933 0.0535   0.8590  0.1410  6.0909  1.8068  0.4509 0.0094
22   <= 717    368     318     50      3639       2656       983 0.0630   0.8641  0.1359  6.3600  1.8500  0.4941 0.0132
23   <= 721    134     119     15      3773       2775       998 0.0230   0.8881  0.1119  7.9333  2.0711  0.7151 0.0094
24   <= 723     49      44      5      3822       2819      1003 0.0084   0.8980  0.1020  8.8000  2.1748  0.8188 0.0043
25   <= 739    425     394     31      4247       3213      1034 0.0728   0.9271  0.0729 12.7097  2.5424  1.1864 0.0700
26   <= 746    166     154     12      4413       3367      1046 0.0284   0.9277  0.0723 12.8333  2.5520  1.1961 0.0277
27   <= 756    234     218     16      4647       3585      1062 0.0401   0.9316  0.0684 13.6250  2.6119  1.2560 0.0422
28   <= 761    110     104      6      4757       3689      1068 0.0188   0.9455  0.0545 17.3333  2.8526  1.4967 0.0260
29   <= 763     46      44      2      4803       3733      1070 0.0079   0.9565  0.0435 22.0000  3.0910  1.7351 0.0135
30   <= 767     96      92      4      4899       3825      1074 0.0164   0.9583  0.0417 23.0000  3.1355  1.7795 0.0293
31   <= 772     77      74      3      4976       3899      1077 0.0132   0.9610  0.0390 24.6667  3.2055  1.8495 0.0249
32   <= 787    269     260      9      5245       4159      1086 0.0461   0.9665  0.0335 28.8889  3.3635  2.0075 0.0974
33   <= 794     95      93      2      5340       4252      1088 0.0163   0.9789  0.0211 46.5000  3.8395  2.4835 0.0456
34    > 794    182     179      3      5522       4431      1091 0.0312   0.9835  0.0165 59.6667  4.0888  2.7328 0.0985
35  Missing    315     210    105      5837       4641      1196 0.0540   0.6667  0.3333  2.0000  0.6931 -0.6628 0.0282
36    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804  1.3559  0.0000 0.8357

Bureau_Score Binning with monobin() Function

   Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds LnOdds     WoE     IV
1    <= 617    513     284    229       513        284       229 0.0879   0.5536  0.4464  1.2402 0.2153 -1.1407 0.1486
2    <= 642    515     317    198      1028        601       427 0.0882   0.6155  0.3845  1.6010 0.4706 -0.8853 0.0861
3    <= 657    512     349    163      1540        950       590 0.0877   0.6816  0.3184  2.1411 0.7613 -0.5946 0.0363
4    <= 672    487     371    116      2027       1321       706 0.0834   0.7618  0.2382  3.1983 1.1626 -0.1933 0.0033
5    <= 685    494     396     98      2521       1717       804 0.0846   0.8016  0.1984  4.0408 1.3964  0.0405 0.0001
6    <= 701    521     428     93      3042       2145       897 0.0893   0.8215  0.1785  4.6022 1.5265  0.1706 0.0025
7    <= 714    487     418     69      3529       2563       966 0.0834   0.8583  0.1417  6.0580 1.8014  0.4454 0.0144
8    <= 730    489     441     48      4018       3004      1014 0.0838   0.9018  0.0982  9.1875 2.2178  0.8619 0.0473
9    <= 751    513     476     37      4531       3480      1051 0.0879   0.9279  0.0721 12.8649 2.5545  1.1986 0.0859
10   <= 775    492     465     27      5023       3945      1078 0.0843   0.9451  0.0549 17.2222 2.8462  1.4903 0.1157
11    > 775    499     486     13      5522       4431      1091 0.0855   0.9739  0.0261 37.3846 3.6213  2.2653 0.2126
12  Missing    315     210    105      5837       4641      1196 0.0540   0.6667  0.3333  2.0000 0.6931 -0.6628 0.0282
13    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804 1.3559  0.0000 0.7810

Joining Tables in SparkR

library(SparkR, lib.loc = paste(Sys.getenv("SPARK_HOME"), "/R/lib", sep = ""))
sc <- sparkR.session(master = "local")
df1 <- read.df("nycflights13.csv", source = "csv", header = "true", inferSchema = "true")

grp1 <- groupBy(filter(df1, "month in (1, 2, 3)"), "month")
sum1 <- withColumnRenamed(agg(grp1, min_dep = min(df1$dep_delay)), "month", "month1")

grp2 <- groupBy(filter(df1, "month in (2, 3, 4)"), "month")
sum2 <- withColumnRenamed(agg(grp2, max_dep = max(df1$dep_delay)), "month", "month2")

# INNER JOIN
showDF(merge(sum1, sum2, by.x = "month1", by.y = "month2", all = FALSE))

showDF(join(sum1, sum2, sum1$month1 == sum2$month2, "inner"))

#+------+-------+------+-------+
#|month1|min_dep|month2|max_dep|
#+------+-------+------+-------+
#|     3|    -25|     3|    911|
#|     2|    -33|     2|    853|
#+------+-------+------+-------+

# LEFT JOIN
showDF(merge(sum1, sum2, by.x = "month1", by.y = "month2", all.x = TRUE))

showDF(join(sum1, sum2, sum1$month1 == sum2$month2, "left"))

#+------+-------+------+-------+
#|month1|min_dep|month2|max_dep|
#+------+-------+------+-------+
#|     1|    -30|  null|   null|
#|     3|    -25|     3|    911|
#|     2|    -33|     2|    853|
#+------+-------+------+-------+

# RIGHT JOIN
showDF(merge(sum1, sum2, by.x = "month1", by.y = "month2", all.y = TRUE))

showDF(join(sum1, sum2, sum1$month1 == sum2$month2, "right"))

#+------+-------+------+-------+
#|month1|min_dep|month2|max_dep|
#+------+-------+------+-------+
#|     3|    -25|     3|    911|
#|  null|   null|     4|    960|
#|     2|    -33|     2|    853|
#+------+-------+------+-------+

# FULL JOIN
showDF(merge(sum1, sum2, by.x = "month1", by.y = "month2", all = TRUE))

showDF(join(sum1, sum2, sum1$month1 == sum2$month2, "full"))

#+------+-------+------+-------+
#|month1|min_dep|month2|max_dep|
#+------+-------+------+-------+
#|     1|    -30|  null|   null|
#|     3|    -25|     3|    911|
#|  null|   null|     4|    960|
#|     2|    -33|     2|    853|
#+------+-------+------+-------+

R Interface to Spark

SparkR

library(SparkR, lib.loc = paste(Sys.getenv("SPARK_HOME"), "/R/lib", sep = ""))
sc <- sparkR.session(master = "local")
df1 <- read.df("nycflights13.csv", source = "csv", header = "true", inferSchema = "true")

### SUMMARY TABLE WITH SQL
createOrReplaceTempView(df1, "tbl1")
summ <- sql("select month, avg(dep_time) as avg_dep, avg(arr_time) as avg_arr from tbl1 where month in (1, 3, 5) group by month")
head(summ)
#   month  avg_dep  avg_arr
# 1     1 1347.210 1523.155
# 2     3 1359.500 1509.743
# 3     5 1351.168 1502.685

### SUMMARY TABLE WITH AGG()
grp <- groupBy(filter(df1, "month in (1, 3, 5)"), "month")
summ <- agg(grp, avg_dep = avg(df1$dep_time), avg_arr = avg(df1$arr_time))
head(summ)
#   month  avg_dep  avg_arr
# 1     1 1347.210 1523.155
# 2     3 1359.500 1509.743
# 3     5 1351.168 1502.685

sparklyr

library(sparklyr)
sc <- spark_connect(master = "local")
df1 <- spark_read_csv(sc, name = "tbl1", path = "nycflights13.csv", header = TRUE, infer_schema = TRUE)

### SUMMARY TABLE WITH SQL
library(DBI)
summ <- dbGetQuery(sc, "select month, avg(dep_time) as avg_dep, avg(arr_time) as avg_arr from tbl1 where month in (1, 3, 5) group by month")
head(summ)
#   month  avg_dep  avg_arr
# 1     5 1351.168 1502.685
# 2     1 1347.210 1523.155
# 3     3 1359.500 1509.743

### SUMMARY TABLE WITH DPLYR
library(dplyr)
summ <- df1 %>% 
        filter(month %in% c(1, 3, 5)) %>% 
        group_by(month) %>%
        summarize(avg_dep = mean(dep_time), avg_arr = mean(arr_time)) 
head(summ)        
#   month  avg_dep  avg_arr
#   <int>    <dbl>    <dbl>
# 1     5 1351.168 1502.685
# 2     1 1347.210 1523.155
# 3     3 1359.500 1509.743

Monotonic Binning with Smbinning Package

The R package smbinning (https://cran.r-project.org/web/packages/smbinning/index.html) provides a very user-friendly interface for the WoE (Weight of Evidence) binning algorithm employed in the scorecard development. However, there are several improvement opportunities in my view:

1. First of all, the underlying algorithm in the smbinning() function utilizes the recursive partitioning, which does not necessarily guarantee the monotonicity.
2. Secondly, the density in each generated bin is not even. The frequency in some bins could be much higher than the one in others.
3. At last, the function might not provide the binning outcome for some variables due to the lack of statistical significance.

In light of the above, I wrote an enhanced version by utilizing the smbinning.custom() function, shown as below. The idea is very simple. Within the repeat loop, we would bin the variable iteratively until a certain criterion is met and then feed the list of cut points into the smbinning.custom() function. As a result, we are able to achieve a set of monotonic bins with similar frequencies regardless of the so-called “statistical significance”, which is a premature step for the variable transformation in my mind.

monobin <- function(data, y, x) {
  d1 <- data[c(y, x)]
  n <- min(20, nrow(unique(d1[x])))
  repeat {
    d1$bin <- Hmisc::cut2(d1[, x], g = n)
    d2 <- aggregate(d1[-3], d1[3], mean)
    c <- cor(d2[-1], method = "spearman")
    if(abs(c[1, 2]) == 1 | n == 2) break
    n <- n - 1
  }
  d3 <- aggregate(d1[-3], d1[3], max)
  cuts <- d3[-length(d3[, 3]), 3]
  return(smbinning::smbinning.custom(d1, y, x, cuts))
}

Below are a couple comparisons between the generic smbinning() and the home-brew monobin() functions with the use of a toy data.

In the first example, we applied the smbinning() function to a variable named "rev_util". As shown in the highlighted rows in the column "BadRate", the binning outcome is not monotonic.

  Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds LnOdds     WoE     IV
1     <= 0    965     716    249       965        716       249 0.1653   0.7420  0.2580  2.8755 1.0562 -0.2997 0.0162
2     <= 5    522     496     26      1487       1212       275 0.0894   0.9502  0.0498 19.0769 2.9485  1.5925 0.1356
3    <= 24   1166    1027    139      2653       2239       414 0.1998   0.8808  0.1192  7.3885 1.9999  0.6440 0.0677
4    <= 40    779     651    128      3432       2890       542 0.1335   0.8357  0.1643  5.0859 1.6265  0.2705 0.0090
5    <= 73   1188     932    256      4620       3822       798 0.2035   0.7845  0.2155  3.6406 1.2922 -0.0638 0.0008
6     96    533     337    196      5837       4641      1196 0.0913   0.6323  0.3677  1.7194 0.5420 -0.8140 0.0743
8  Missing      0       0      0      5837       4641      1196 0.0000      NaN     NaN     NaN    NaN     NaN    NaN
9    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804 1.3559  0.0000 0.3352

Next, we did the same with the monobin() function. As shown below, the algorithm provided a monotonic binning at the cost of granularity. Albeit coarse, the result is directionally correct with no inversion.

  Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate   Odds LnOdds     WoE     IV
1     30   2875    2146    729      5837       4641      1196 0.4925   0.7464  0.2536 2.9438 1.0797 -0.2763 0.0407
3  Missing      0       0      0      5837       4641      1196 0.0000      NaN     NaN    NaN    NaN     NaN    NaN
4    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049 3.8804 1.3559  0.0000 0.0878

In the second example, we applied the smbinning() function to a variable named “bureau_score”. As shown in the highlighted rows, the frequencies in these two bins are much higher than the rest.

  Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds LnOdds     WoE     IV
1   <= 605    324     167    157       324        167       157 0.0555   0.5154  0.4846  1.0637 0.0617 -1.2942 0.1233
2   <= 632    468     279    189       792        446       346 0.0802   0.5962  0.4038  1.4762 0.3895 -0.9665 0.0946
3   <= 662    896     608    288      1688       1054       634 0.1535   0.6786  0.3214  2.1111 0.7472 -0.6087 0.0668
4   <= 699   1271    1016    255      2959       2070       889 0.2177   0.7994  0.2006  3.9843 1.3824  0.0264 0.0002
5   <= 717    680     586     94      3639       2656       983 0.1165   0.8618  0.1382  6.2340 1.8300  0.4741 0.0226
6    761    765     742     23      5522       4431      1091 0.1311   0.9699  0.0301 32.2609 3.4739  2.1179 0.2979
8  Missing    315     210    105      5837       4641      1196 0.0540   0.6667  0.3333  2.0000 0.6931 -0.6628 0.0282
9    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804 1.3559  0.0000 0.8066

With the monobin() function applied to the same variable, we were able to get a set of more granular bins with similar frequencies.

   Cutpoint CntRec CntGood CntBad CntCumRec CntCumGood CntCumBad PctRec GoodRate BadRate    Odds LnOdds     WoE     IV
1    <= 617    513     284    229       513        284       229 0.0879   0.5536  0.4464  1.2402 0.2153 -1.1407 0.1486
2    <= 642    515     317    198      1028        601       427 0.0882   0.6155  0.3845  1.6010 0.4706 -0.8853 0.0861
3    <= 657    512     349    163      1540        950       590 0.0877   0.6816  0.3184  2.1411 0.7613 -0.5946 0.0363
4    <= 672    487     371    116      2027       1321       706 0.0834   0.7618  0.2382  3.1983 1.1626 -0.1933 0.0033
5    <= 685    494     396     98      2521       1717       804 0.0846   0.8016  0.1984  4.0408 1.3964  0.0405 0.0001
6    <= 701    521     428     93      3042       2145       897 0.0893   0.8215  0.1785  4.6022 1.5265  0.1706 0.0025
7    <= 714    487     418     69      3529       2563       966 0.0834   0.8583  0.1417  6.0580 1.8014  0.4454 0.0144
8    <= 730    489     441     48      4018       3004      1014 0.0838   0.9018  0.0982  9.1875 2.2178  0.8619 0.0473
9    <= 751    513     476     37      4531       3480      1051 0.0879   0.9279  0.0721 12.8649 2.5545  1.1986 0.0859
10    775    499     486     13      5522       4431      1091 0.0855   0.9739  0.0261 37.3846 3.6213  2.2653 0.2126
12  Missing    315     210    105      5837       4641      1196 0.0540   0.6667  0.3333  2.0000 0.6931 -0.6628 0.0282
13    Total   5837    4641   1196        NA         NA        NA 1.0000   0.7951  0.2049  3.8804 1.3559  0.0000 0.7810

Estimate Regression with (Type-I) Pareto Response

The Type-I Pareto distribution has a probability function shown as below

f(y; a, k) = k * (a ^ k) / (y ^ (k + 1))

In the formulation, the scale parameter 0 < a < y and the shape parameter k > 1 .

The positive lower bound of Type-I Pareto distribution is particularly appealing in modeling the severity measure in that there is usually a reporting threshold for operational loss events. For instance, the reporting threshold of ABA operational risk consortium data is $10,000 and any loss event below the threshold value would be not reported, which might add the complexity in the severity model estimation.

In practice, instead of modeling the severity measure directly, we might model the shifted response y` = severity – threshold to accommodate the threshold value such that the supporting domain of y` could start from 0 and that the Gamma, Inverse Gaussian, or Lognormal regression can still be applicable. However, under the distributional assumption of Type-I Pareto with a known lower end, we do not need to shift the severity measure anymore but model it directly based on the probability function.

Below is the R code snippet showing how to estimate a regression model for the Pareto response with the lower bound a = 2 by using the VGAM package.

library(VGAM)
set.seed(2017)
n <- 200
a <- 2
x <- runif(n)
k <- exp(1 + 5 * x)
pdata <- data.frame(y = rpareto(n = n, scale = a, shape = k), x = x)
fit <- vglm(y ~ x, paretoff(scale = a), data = pdata, trace = TRUE)
summary(fit)
# Coefficients:
#             Estimate Std. Error z value Pr(>|z|)
# (Intercept)   1.0322     0.1363   7.574 3.61e-14 ***
# x             4.9815     0.2463  20.229  < 2e-16 ***
AIC(fit)
#  -644.458
BIC(fit)
#  -637.8614

The SAS code below estimating the Type-I Pareto regression provides almost identical model estimation.

proc nlmixed data = pdata;
  parms b0 = 0.1 b1 = 0.1;
  k = exp(b0 + b1 * x);
  a = 2;
  lh = k * (a ** k) / (y ** (k + 1));
  ll = log(lh);
  model y ~ general(ll);
run;
/*
Fit Statistics
-2 Log Likelihood               -648.5
AIC (smaller is better)         -644.5
AICC (smaller is better)        -644.4
BIC (smaller is better)         -637.9

Parameter Estimate   Standard   DF    t Value   Pr > |t|
                     Error 
b0        1.0322     0.1385     200    7.45     <.0001 	
b1        4.9815     0.2518     200   19.78     <.0001 	
*/

At last, it is worth pointing out that the conditional mean of Type-I Pareto response is not equal to exp(x * beta) but a * k / (k – 1) with k = exp(x * beta) . Therefore, the conditional mean only exists when k > 1 , which might cause numerical issues in the model estimation.

More about Flexible Frequency Models

Modeling the frequency is one of the most important aspects in operational risk models. In the previous post (https://statcompute.wordpress.com/2016/05/13/more-flexible-approaches-to-model-frequency), the importance of flexible modeling approaches for both under-dispersion and over-dispersion has been discussed.

In addition to the quasi-poisson regression, three flexible frequency modeling techniques, including generalized poisson, double poisson, and Conway-Maxwell poisson, with their implementations in R should also be demonstrated below. While the example is specifically related to the over-dispersed data simulated with the negative binomial distributional assumption, these approaches can be generalized to the under-dispersed data as well given their flexibility. However, as demonstrated below, the calculation of parameters for these modeling approaches is not straight-forward.

Over-Dispersed Data Simulation

> set.seed(1)
> ### SIMULATE NEG. BINOMIAL WITH MEAN(X) = MU AND VAR(X) = MU + MU ^ 2 / THETA
> df <- data.frame(y = MASS::rnegbin(1000, mu = 10, theta = 5))
> ### DATA MEAN
> mean(df$y)
[1] 9.77
> ### DATA VARIANCE
> var(df$y)
[1] 30.93003003

Generalized Poisson Regression

> library(VGAM)
> gpois <- vglm(y ~ 1, data = df, family = genpoisson)
> gpois.theta <- exp(coef(gpois)[2])
> gpois.lambda <- (exp(coef(gpois)[1]) - 1) / (exp(coef(gpois)[1]) + 1)
> ### ESTIMATE MEAN = THETA / (1 - LAMBDA)
> gpois.theta / (1 - gpois.lambda)
(Intercept):2
         9.77
> ### ESTIMATE VARIANCE = THETA / ((1 - LAMBDA) ^ 3)
> gpois.theta / ((1 - gpois.lambda) ^ 3)
(Intercept):2
  31.45359991

Double Poisson Regression

> ### DOUBLE POISSON
> library(gamlss)
> dpois <- gamlss(y ~ 1, data = df, family = DPO, control = gamlss.control(n.cyc = 100))
> ### ESTIMATE MEAN
> dpois.mu <- exp(dpois$mu.coefficients)
> dpois.mu
(Intercept)
9.848457877
> ### ESTIMATE VARIANCE = MU * SIGMA
> dpois.sigma <- exp(dpois$sigma.coefficients)
> dpois.mu * dpois.sigma
(Intercept)
28.29229702

Conway-Maxwell Poisson Regression

> ### CONWAY-MAXWELL POISSON
> library(CompGLM)
> cpois <- glm.comp(y ~ 1, data = df)
> cpois.lambda <- exp(cpois$beta)
> cpois.nu <- exp(cpois$zeta)
> ### ESTIMATE MEAN = LAMBDA ^ (1 / NU) - (NU - 1) / (2 * NU)
> cpois.lambda ^ (1 / cpois.nu) - (cpois.nu - 1) / (2 * cpois.nu)
(Intercept)
 9.66575376
> ### ESTIMATE VARIANCE = LAMBDA ** (1 / NU) / NU
> cpois.lambda ^ (1 / cpois.nu) / cpois.nu
(Intercept)
29.69861239

Fastest Way to Add New Variables to A Large Data.Frame

pkgs <- list("hflights", "doParallel", "foreach", "dplyr", "rbenchmark", "data.table")
lapply(pkgs, require, character.only = T)

data(hflights)

benchmark(replications = 10, order = "user.self", relative = "user.self",
  transform = {
    ### THE GENERIC FUNCTION MODIFYING THE DATA.FRAME, SIMILAR TO DATA.FRAME() ###
    transform(hflights, wday = ifelse(DayOfWeek %in% c(6, 7), 'weekend', 'weekday'), delay = ArrDelay + DepDelay)
  },
  within    = {
    ### EVALUATE THE EXPRESSION WITHIN THE LOCAL ENVIRONMENT ###
    within(hflights, {wday = ifelse(DayOfWeek %in% c(6, 7), 'weekend', 'weekday'); delay = ArrDelay + DepDelay})
  },
  mutate   = {
    ### THE SPECIFIC FUNCTION IN DPLYR PACKAGE TO ADD VARIABLES ###
    mutate(hflights, wday = ifelse(DayOfWeek %in% c(6, 7), 'weekend', 'weekday'), delay = ArrDelay + DepDelay)
  },
  foreach = {
    ### SPLIT AND THEN COMBINE IN PARALLEL ###
    registerDoParallel(cores = 2)
    v <- c(names(hflights), 'wday', 'delay')
    f <- expression(ifelse(hflights$DayOfWeek %in% c(6, 7), 'weekend', 'weekday'),
                    hflights$ArrDelay + hflights$DepDelay)
    df <- foreach(fn = iter(f), .combine = mutate, .init = hflights) %dopar% {
      eval(fn)
    }
    names(df) <- v
  },
  data.table = {
    ### DATA.TABLE ###
    data.table(hflights)[, c("wday", "delay") := list(ifelse(hflights$DayOfWeek %in% c(6, 7), 'weekend', 'weekday'), hflights$ArrDelay + hflights$DepDelay)]
  }
)

#         test replications elapsed relative user.self sys.self user.child
# 4    foreach           10   1.442    1.000     0.240    0.144      0.848
# 2     within           10   0.667    2.783     0.668    0.000      0.000
# 3     mutate           10   0.679    2.833     0.680    0.000      0.000
# 5 data.table           10   0.955    3.983     0.956    0.000      0.000
# 1  transform           10   1.732    7.200     1.728    0.000      0.000

Risk Models with Generalized PLS

While developing risk models with hundreds of potential variables, we often run into the situation that risk characteristics or macro-economic indicators are highly correlated, namely multicollinearity. In such cases, we might have to drop variables with high VIFs or employ “variable shrinkage” methods, e.g. lasso or ridge, to suppress variables with colinearity.

Feature extraction approaches based on PCA and PLS have been widely discussed but are rarely used in real-world applications due to concerns around model interpretability and implementation. In the example below, it is shown that there shouldn’t any hurdle in the model implementation, e.g. score, given that coefficients can be extracted from a GPLS model in the similar way from a GLM model. In addition, compared with GLM with 8 variables, GPLS with only 5 components is able to provide a comparable performance in the hold-out testing data.

R Code

library(gpls)
library(pROC)

df1 <- read.csv("credit_count.txt")
df2 <- df1[df1$CARDHLDR == 1, -c(1, 10, 11, 12, 13)]
set.seed(2016)
n <- nrow(df2)
sample <- sample(seq(n), size = n / 2, replace = FALSE)
train <- df2[sample, ]
test <- df2[-sample, ]

m1 <- glm(DEFAULT ~ ., data = train, family = "binomial")
cat("\n### ROC OF GLM PREDICTION WITH TRAINING DATA ###\n")
print(roc(train$DEFAULT, predict(m1, newdata = train, type = "response")))
cat("\n### ROC OF GLM PREDICTION WITH TESTING DATA ###\n")
print(roc(test$DEFAULT, predict(m1, newdata = test, type = "response")))

m2 <- gpls(DEFAULT ~ ., data = train, family = "binomial", K.prov = 5)
cat("\n### ROC OF GPLS PREDICTION WITH TRAINING DATA ###\n")
print(roc(train$DEFAULT, predict(m2, newdata = train)$predicted[, 1]))
cat("\n### ROC OF GPLS PREDICTION WITH TESTING DATA ###\n")
print(roc(test$DEFAULT, predict(m2, newdata = test)$predicted[, 1]))

cat("\n### COEFFICIENTS COMPARISON BETWEEN GLM AND GPLS ###\n")
print(data.frame(glm = m1$coefficients, gpls = m2$coefficients))

Output

### ROC OF GLM PREDICTION WITH TRAINING DATA ###

Call:
roc.default(response = train$DEFAULT, predictor = predict(m1,     newdata = train, type = "response"))

Data: predict(m1, newdata = train, type = "response") in 4753 controls (train$DEFAULT 0) < 496 cases (train$DEFAULT 1).
Area under the curve: 0.6641

### ROC OF GLM PREDICTION WITH TESTING DATA ###

Call:
roc.default(response = test$DEFAULT, predictor = predict(m1,     newdata = test, type = "response"))

Data: predict(m1, newdata = test, type = "response") in 4750 controls (test$DEFAULT 0) < 500 cases (test$DEFAULT 1).
Area under the curve: 0.6537

### ROC OF GPLS PREDICTION WITH TRAINING DATA ###

Call:
roc.default(response = train$DEFAULT, predictor = predict(m2,     newdata = train)$predicted[, 1])

Data: predict(m2, newdata = train)$predicted[, 1] in 4753 controls (train$DEFAULT 0) < 496 cases (train$DEFAULT 1).
Area under the curve: 0.6627

### ROC OF GPLS PREDICTION WITH TESTING DATA ###

Call:
roc.default(response = test$DEFAULT, predictor = predict(m2,     newdata = test)$predicted[, 1])

Data: predict(m2, newdata = test)$predicted[, 1] in 4750 controls (test$DEFAULT 0) < 500 cases (test$DEFAULT 1).
Area under the curve: 0.6542

### COEFFICIENTS COMPARISON BETWEEN GLM AND GPLS ###
                      glm          gpls
(Intercept) -0.1940785071 -0.1954618828
AGE         -0.0122709412 -0.0147883358
ACADMOS      0.0005302022  0.0003671781
ADEPCNT      0.1090667092  0.1352491711
MAJORDRG     0.0757313171  0.0813835741
MINORDRG     0.2621574192  0.2547176301
OWNRENT     -0.2803919685 -0.1032119571
INCOME      -0.0004222914 -0.0004531543
LOGSPEND    -0.1688395555 -0.1525963363

More Flexible Approaches to Model Frequency

(The post below is motivated by my friend Matt Flynn https://www.linkedin.com/in/matthew-flynn-1b443b11)

In the context of operational loss forecast models, the standard Poisson regression is the most popular way to model frequency measures. Conceptually speaking, there is a restrictive assumption for the standard Poisson regression, namely Equi-Dispersion, which requires the equality between the conditional mean and the variance such that E(Y) = var(Y). However, in real-world frequency outcomes, the assumption of Equi-Dispersion is always problematic. On the contrary, the empirical data often presents either an excessive variance, namely Over-Dispersion, or an insufficient variance, namely Under-Dispersion. The application of a standard Poisson regression to the over-dispersed data will lead to deflated standard errors of parameter estimates and therefore inflated t-statistics.

In cases of Over-Dispersion, the Negative Binomial (NB) regression has been the most common alternative to the standard Poisson regression by including a dispersion parameter to accommodate the excessive variance in the data. In the formulation of NB regression, the variance is expressed as a quadratic function of the conditional mean such that the variance is guaranteed to be higher than the conditional mean. However, it is not flexible enough to allow for both Over-Dispersion and Under-Dispersion. Therefore, more generalizable approaches are called for.

Two additional frequency modeling methods, including Quasi-Poisson (QP) regression and Conway-Maxwell Poisson (CMP) regression, are discussed. In the case of Quasi-Poisson, E(Y) = λ and var(Y) = θ • λ. While θ > 1 addresses Over-Dispersion, θ < 1 governs Under-Dispersion. Since QP regression is estimated with QMLE, likelihood-based statistics, such as AIC and BIC, won’t be available. Instead, quasi-AIC and quasi-BIC are provided. In the case of Conway-Maxwell Poisson, E(Y) = λ ** (1 / v) – (v – 1) / (2 • v) and var(Y) = (1 / v) • λ ** (1 / v), where λ doesn’t represent the conditional mean anymore but a location parameter. While v < 1 enables us to model the long-tailed distribution reflected as Over-Dispersion, v > 1 takes care of the short-tailed distribution reflected as Under-Dispersion. Since CMP regression is estimated with MLE, likelihood-based statistics, such as AIC and BIC, are available at a high computing cost.

Below demonstrates how to estimate QP and CMP regressions with R and a comparison of their computing times. If the modeling purpose is mainly for the prediction without focusing on the statistical reference, QP regression would be an excellent choice for most practitioners. Otherwise, CMP regression is an elegant model to address various levels of dispersion parsimoniously.

# data source: www.jstatsoft.org/article/view/v027i08
load("../Downloads/DebTrivedi.rda")

library(rbenchmark)
library(CompGLM)

benchmark(replications = 3, order = "user.self",
  quasi.poisson = {
    m1 <- glm(ofp ~ health + hosp + numchron + privins + school + gender + medicaid, data = DebTrivedi, family = "quasipoisson")
  },
  conway.maxwell = {
    m2 <- glm.comp(ofp ~ health + hosp + numchron + privins + school + gender + medicaid, data = DebTrivedi, lamStart = m1$coefficient
s)
  }
)
#             test replications elapsed relative user.self sys.self user.child
# 1  quasi.poisson            3   0.084    1.000     0.084    0.000          0
# 2 conway.maxwell            3  42.466  505.548    42.316    0.048          0

summary(m1)
summary(m2)

Quasi-Poisson Regression

Coefficients:
                 Estimate Std. Error t value Pr(>|t|)
(Intercept)      0.886462   0.069644  12.729  < 2e-16 ***
healthpoor       0.235673   0.046284   5.092 3.69e-07 ***
healthexcellent -0.360188   0.078441  -4.592 4.52e-06 ***
hosp             0.163246   0.015594  10.468  < 2e-16 ***
numchron         0.144652   0.011894  12.162  < 2e-16 ***
privinsyes       0.304691   0.049879   6.109 1.09e-09 ***
school           0.028953   0.004812   6.016 1.93e-09 ***
gendermale      -0.092460   0.033830  -2.733   0.0063 **
medicaidyes      0.297689   0.063787   4.667 3.15e-06 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

(Dispersion parameter for quasipoisson family taken to be 6.697556)

    Null deviance: 26943  on 4405  degrees of freedom
Residual deviance: 23027  on 4397  degrees of freedom
AIC: NA

Conway-Maxwell Poisson Regression

Beta:
                   Estimate   Std.Error  t.value p.value
(Intercept)     -0.23385559  0.16398319  -1.4261 0.15391
healthpoor       0.03226830  0.01325437   2.4345 0.01495 *
healthexcellent -0.08361733  0.00687228 -12.1673 < 2e-16 ***
hosp             0.01743416  0.01500555   1.1618 0.24536
numchron         0.02186788  0.00209274  10.4494 < 2e-16 ***
privinsyes       0.05193645  0.00184446  28.1581 < 2e-16 ***
school           0.00490214  0.00805940   0.6083 0.54305
gendermale      -0.01485663  0.00076861 -19.3292 < 2e-16 ***
medicaidyes      0.04861617  0.00535814   9.0733 < 2e-16 ***

Zeta:
              Estimate  Std.Error t.value   p.value
(Intercept) -3.4642316  0.0093853 -369.11 < 2.2e-16 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

AIC: 24467.13
Log-Likelihood: -12223.56

Improve SVM Tuning through Parallelism

As pointed out in the chapter 10 of “The Elements of Statistical Learning”, ANN and SVM (support vector machines) share similar pros and cons, e.g. lack of interpretability and good predictive power. However, in contrast to ANN usually suffering from local minima solutions, SVM is always able to converge globally. In addition, SVM is less prone to over-fitting given a good choice of free parameters, which usually can be identified through cross-validations.

In the R package “e1071”, tune() function can be used to search for SVM parameters but is extremely inefficient due to the sequential instead of parallel executions. In the code snippet below, a parallelism-based algorithm performs the grid search for SVM parameters through the K-fold cross validation.

pkgs <- c('foreach', 'doParallel')
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 4)
### PREPARE FOR THE DATA ###
df1 <- read.csv("credit_count.txt")
df2 <- df1[df1$CARDHLDR == 1, ]
x <- paste("AGE + ACADMOS + ADEPCNT + MAJORDRG + MINORDRG + OWNRENT + INCOME + SELFEMPL + INCPER + EXP_INC")
fml <- as.formula(paste("as.factor(DEFAULT) ~ ", x))
### SPLIT DATA INTO K FOLDS ###
set.seed(2016)
df2$fold <- caret::createFolds(1:nrow(df2), k = 4, list = FALSE)
### PARAMETER LIST ###
cost <- c(10, 100)
gamma <- c(1, 2)
parms <- expand.grid(cost = cost, gamma = gamma)
### LOOP THROUGH PARAMETER VALUES ###
result <- foreach(i = 1:nrow(parms), .combine = rbind) %do% {
  c <- parms[i, ]$cost
  g <- parms[i, ]$gamma
  ### K-FOLD VALIDATION ###
  out <- foreach(j = 1:max(df2$fold), .combine = rbind, .inorder = FALSE) %dopar% {
    deve <- df2[df2$fold != j, ]
    test <- df2[df2$fold == j, ]
    mdl <- e1071::svm(fml, data = deve, type = "C-classification", kernel = "radial", cost = c, gamma = g, probability = TRUE)
    pred <- predict(mdl, test, decision.values = TRUE, probability = TRUE)
    data.frame(y = test$DEFAULT, prob = attributes(pred)$probabilities[, 2])
  }
  ### CALCULATE SVM PERFORMANCE ###
  roc <- pROC::roc(as.factor(out$y), out$prob) 
  data.frame(parms[i, ], roc = roc$auc[1])
}

Where Bagging Might Work Better Than Boosting

In the previous post (https://statcompute.wordpress.com/2016/01/01/the-power-of-decision-stumps), it was shown that the boosting algorithm performs extremely well even with a simple 1-level stump as the base learner and provides a better performance lift than the bagging algorithm does. However, this observation shouldn’t be generalized, which would be demonstrated in the following example.

First of all, we developed a rule-based PART model as below. Albeit pruned, this model will still tend to over-fit the data, as shown in the highlighted.

# R = TRUE AND N = 10 FOR 10-FOLD CV PRUNING
# M = 5 SPECIFYING MINIMUM NUMBER OF CASES PER LEAF
part_control <- Weka_control(R = TRUE, N = 10, M = 5, Q = 2016)
part <- PART(fml, data = df, control = part_control)
roc(as.factor(train$DEFAULT), predict(part, newdata = train, type = "probability")[, 2])
# Area under the curve: 0.6839
roc(as.factor(test$DEFAULT), predict(part, newdata = test, type = "probability")[, 2])
# Area under the curve: 0.6082

Next, we applied the boosting to the PART model. As shown in the highlighted result below, AUC of the boosting on the testing data is even lower than AUC of the base model.

wlist <- list(PART, R = TRUE, N = 10, M = 5, Q = 2016)
# I = 100 SPECIFYING NUMBER OF ITERATIONS
# Q = TRUE SPECIFYING RESAMPLING USED IN THE BOOSTING
boost_control <- Weka_control(I = 100, S = 2016, Q = TRUE, P = 100, W = wlist)
boosting <- AdaBoostM1(fml, data = train, control = boost_control)
roc(as.factor(test$DEFAULT), predict(boosting, newdata = test, type = "probability")[, 2])
# Area under the curve: 0.592

However, if employing the bagging, we are able to achieve more than 11% performance lift in terms of AUC.

# NUM-SLOTS = 0 AND I = 100 FOR PARALLELISM 
# P = 50 SPECIFYING THE SIZE OF EACH BAG
bag_control <- Weka_control("num-slots" = 0, I = 100, S = 2016, P = 50, W = wlist)
bagging <- Bagging(fml, data = train, control = bag_control)
roc(as.factor(test$DEFAULT), predict(bagging, newdata = test, type = "probability")[, 2])
# Area under the curve: 0.6778

From examples demonstrated today and yesterday, an important lesson to learn is that ensemble methods are powerful machine learning tools only when they are used appropriately. Empirically speaking, while the boosting works well to improve the performance of a under-fitted base model such as the decision stump, the bagging might be able to perform better in the case of an over-fitted base model with high variance and low bias.

The Power of Decision Stumps

A decision stump is the weak classification model with the simple tree structure consisting of one split, which can also be considered a one-level decision tree. Due to its simplicity, the stump often demonstrates a low predictive performance. As shown in the example below, the AUC measure of a stump is even lower than the one of a single attribute in a separate testing dataset.

pkgs <- c('pROC', 'RWeka')
lapply(pkgs, require, character.only = T)
df1 <- read.csv("credit_count.txt")
df2 <- df1[df1$CARDHLDR == 1, ]
set.seed(2016)
n <- nrow(df2)
sample <- sample(seq(n), size = n / 2, replace = FALSE)
train <- df2[sample, ]
test <- df2[-sample, ]
x <- paste("AGE + ACADMOS + ADEPCNT + MAJORDRG + MINORDRG + OWNRENT + INCOME + SELFEMPL + INCPER + EXP_INC")
fml <- as.formula(paste("as.factor(DEFAULT) ~ ", x))

### IDENTIFY THE MOST PREDICTIVE ATTRIBUTE ###
imp <- InfoGainAttributeEval(fml, data = train)
imp_x <- test[, names(imp[imp == max(imp)])]
roc(as.factor(test$DEFAULT), imp_x)
# Area under the curve: 0.6243

### CONSTRUCT A WEAK CLASSIFIER OF DECISION STUMP ###
stump <- DecisionStump(fml, data = train)
print(stump)
roc(as.factor(test$DEFAULT), predict(stump, newdata = test, type = "probability")[, 2])
# Area under the curve: 0.5953

Albeit weak by itself, the decision stump can be used as a base model in many machine learning ensemble methods, such as bagging and boosting. For instance, the bagging classifier with 1,000 stumps combined outperforms the single stump by ~7% in terms of AUC (0.6346 vs. 0.5953). Moreover, AdaBoost with stumps can further improve the predictive performance over the single stump by ~11% (0.6585 vs. 0.5953) and also over the logistic regression benchmark by ~2% (0.6585 vs. 0.6473).

### BUILD A BAGGING CLASSIFIER WITH 1,000 STUMPS IN PARALLEL ###
bagging <- Bagging(fml, data = train, control = Weka_control("num-slots" = 0, I = 1000, W = "DecisionStump", S = 2016, P = 50))
roc(as.factor(test$DEFAULT), predict(bagging, newdata = test, type = "probability")[, 2])
# Area under the curve: 0.6346

### BUILD A BOOSTING CLASSIFIER WITH STUMPS ###
boosting <- AdaBoostM1(fml, data = train, control = Weka_control(I = 100, W = "DecisionStump", S = 2016))
roc(as.factor(test$DEFAULT), predict(boosting, newdata = test, type = "probability")[, 2])
# Area under the curve: 0.6585
 
### DEVELOP A LOGIT MODEL FOR THE BENCHMARK ###
logit <- Logistic(fml, data = train)
roc(as.factor(test$DEFAULT), predict(logit, newdata = test, type = "probability")[, 2])
# Area under the curve: 0.6473

Prediction Intervals for Poisson Regression

Different from the confidence interval that is to address the uncertainty related to the conditional mean, the prediction interval is to accommodate the additional uncertainty associated with prediction errors. As a result, the prediction interval is always wider than the confidence interval in a regression model. In the context of risk modeling, the prediction interval is often used to address the potential model risk due to aforementioned uncertainties.

While calculating prediction interval of OLS regression based on the Gaussian distributional assumption is relatively straightforward with the off-shelf solution in R, it could be more complicated in a Generalized Linear Model, e.g. Poisson regression. In this post, I am going to show two empirical methods, one based on bootstrapping and the other based on simulation, calculating the prediction interval of a Poisson regression. Because of the high computing cost, the parallelism with foreach() function will be used to improve the efficiency.

First of all, let’s estimate a Poisson regression with glm() and generate a couple fake new data points to calculate model predictions. Since the toy data is very small with only 32 records with all categorical predictors, I doubled the sample size by rbind() to ensure the appropriate data coverage in the bootstrapping.

pkgs <- c('doParallel', 'foreach')
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 4)

data(AutoCollision, package = "insuranceData")
df <- rbind(AutoCollision, AutoCollision)
mdl <- glm(Claim_Count ~ Age + Vehicle_Use, data = df, family = poisson(link = "log"))
new_fake <- df[1:5, 1:2]

The first method shown below is based on the bootstrapping with following steps:

1. Bootstrapped the original model development sample by the random sample with replacements;

2. Repeated the above many times, e.g. 1000, to generate different bootstrapped samples;

3. Refitted models with bootstrapped samples;

4. Generated predictions with new data points, e.g. “new_fake”, but with refitted models;

5. Generated random numbers based on Poisson distribution with the mean, e.g. lambda, equal to the predicted values from refitted models

6. Collected all Poisson random numbers from the previous step and calculated the percentiles.

boot_pi <- function(model, pdata, n, p) {
  odata <- model$data
  lp <- (1 - p) / 2
  up <- 1 - lp
  set.seed(2016)
  seeds <- round(runif(n, 1, 1000), 0)
  boot_y <- foreach(i = 1:n, .combine = rbind) %dopar% {
    set.seed(seeds[i])
    bdata <- odata[sample(seq(nrow(odata)), size = nrow(odata), replace = TRUE), ]
    bpred <- predict(update(model, data = bdata), type = "response", newdata = pdata)
    rpois(length(bpred), lambda = bpred)
  }
  boot_ci <- t(apply(boot_y, 2, quantile, c(lp, up)))
  return(data.frame(pred = predict(model, newdata = pdata, type = "response"), lower = boot_ci[, 1], upper = boot_ci[, 2]))
}

boot_pi(mdl, new_fake, 1000, 0.95)
#      pred lower upper
#1 12.63040     6    21
#2 38.69738    25    55
#3 26.97271    16    39
#4 10.69951     4    18
#5 52.50839    35    70

The second method is based on the simulation and outlined as below:

1. Re-produced the model response variable, e.g. Claim_Count, by simulating Poisson random numbers with lambda equal to predicted values from the original model;

2. Repeated the above simulations many times, e.g. 1000, to generate many response series;

3. Generated 1000 updated model samples by replacing the original response with the new response generated from simulations;

4. Refitted models with these updated samples

5. Generated predictions with new data points, e.g. “new_fake”, but with refitted models;

6. Generated Poisson random numbers with lambda equal to the predicted values from refitted models

7. Collected all Poisson random numbers from the previous step and calculated the percentiles.

sim_pi <- function(model, pdata, n, p) {
  odata <- model$data
  yhat <- predict(model, type = "response")
  lp <- (1 - p) / 2
  up <- 1 - lp
  set.seed(2016)
  seeds <- round(runif(n, 1, 1000), 0)
  sim_y <- foreach(i = 1:n, .combine = rbind) %dopar% {
    set.seed(seeds[i])
    sim_y <- rpois(length(yhat), lambda = yhat)
    sdata <- data.frame(y = sim_y, odata[names(model$x)])
    refit <- glm(y ~ ., data = sdata, family = poisson)
    bpred <- predict(refit, type = "response", newdata = pdata)
    rpois(length(bpred),lambda = bpred)
  }
  sim_ci <- t(apply(sim_y, 2, quantile, c(lp, up)))
  return(data.frame(pred = predict(model, newdata = pdata, type = "response"), lower = sim_ci[, 1], upper = sim_ci[, 2]))
}

sim_pi(mdl, new_fake, 1000, 0.95)
#      pred lower upper
#1 12.63040     6    21
#2 38.69738    26    52
#3 26.97271    17    39
#4 10.69951     4    18
#5 52.50839    38    68

As demonstrated above, after a large number of replications, outcomes from both methods are highly consistent.

Calculate Leave-One-Out Prediction for GLM

In the model development, the “leave-one-out” prediction is a way of cross-validation, calculated as below:
1. First of all, after a model is developed, each observation used in the model development is removed in turn and then the model is refitted with the remaining observations
2. The out-of-sample prediction for the refitted model is calculated with the removed observation one by one to assemble the LOO, e.g. leave-one-out predicted values for the whole model development sample.
The loo_predict() function below is a general routine to calculate the LOO prediction for any GLM object, which can be further employed to investigate the model stability and predictability.

> pkgs <- c('doParallel', 'foreach')
> lapply(pkgs, require, character.only = T)
[[1]]
[1] TRUE

[[2]]
[1] TRUE

> registerDoParallel(cores = 8)
>
> data(AutoCollision, package = "insuranceData")
> # A GAMMA GLM #
> model1 <- glm(Severity ~ Age + Vehicle_Use, data = AutoCollision, family = Gamma(link = "log"))
> # A POISSON GLM #
> model2 <- glm(Claim_Count ~ Age + Vehicle_Use, data = AutoCollision, family = poisson(link = "log"))
>
> loo_predict <- function(obj) {
+   yhat <- foreach(i = 1:nrow(obj$data), .combine = rbind) %dopar% {
+     predict(update(obj, data = obj$data[-i, ]), obj$data[i,], type = "response")
+   }
+   return(data.frame(result = yhat[, 1], row.names = NULL))
+ }
> # TEST CASE 1
> test1 <- loo_predict(model1)
> test1$result
 [1] 303.7393 328.7292 422.6610 375.5023 240.9785 227.6365 288.4404 446.5589
 [9] 213.9368 244.7808 278.7786 443.2256 213.9262 243.2495 266.9166 409.2565
[17] 175.0334 172.0683 197.2911 326.5685 187.2529 215.9931 249.9765 349.3873
[25] 190.1174 218.6321 243.7073 359.9631 192.3655 215.5986 233.1570 348.2781
> # TEST CASE 2
> test2 <- loo_predict(model2)
> test2$result
 [1]  11.15897  37.67273  28.76127  11.54825  50.26364 152.35489 122.23782
 [8]  44.57048 129.58158 465.84173 260.48114 107.23832 167.40672 510.41127
[15] 316.50765 121.75804 172.56928 546.25390 341.03826 134.04303 359.30141
[22] 977.29107 641.69934 251.32547 248.79229 684.86851 574.13994 238.42209
[29] 148.77733 504.12221 422.75047 167.61203

Download Federal Reserve Economic Data (FRED) with Python

In the operational loss calculation, it is important to use CPI (Consumer Price Index) adjusting historical losses. Below is an example showing how to download CPI data online directly from Federal Reserve Bank of St. Louis and then to calculate monthly and quarterly CPI adjustment factors with Python.

In [1]: import pandas_datareader.data as web

In [2]: import pandas as pd

In [3]: import numpy as np

In [4]: import datetime as dt

In [5]: # SET START AND END DATES OF THE SERIES

In [6]: sdt = dt.datetime(2000, 1, 1)

In [7]: edt = dt.datetime(2015, 9, 1)

In [8]: cpi = web.DataReader("CPIAUCNS", "fred", sdt, edt)

In [9]: cpi.head()
Out[9]:
            CPIAUCNS
DATE
2000-01-01     168.8
2000-02-01     169.8
2000-03-01     171.2
2000-04-01     171.3
2000-05-01     171.5

In [10]: df1 = pd.DataFrame({'month': [dt.datetime.strftime(i, "%Y-%m") for i in cpi.index]})

In [11]: df1['qtr'] = [str(x.year) + "-Q" + str(x.quarter) for x in cpi.index]

In [12]: df1['m_cpi'] = cpi.values

In [13]: df1.index = cpi.index

In [14]: grp = df1.groupby('qtr', as_index = False)

In [15]: df2 = grp['m_cpi'].agg({'q_cpi': np.mean})

In [16]: df3 = pd.merge(df1, df2, how = 'inner', left_on = 'qtr', right_on = 'qtr')

In [17]: maxm_cpi = np.array(df3.m_cpi)[-1]

In [18]: maxq_cpi = np.array(df3.q_cpi)[-1]

In [19]: df3['m_factor'] = maxm_cpi / df3.m_cpi

In [20]: df3['q_factor'] = maxq_cpi / df3.q_cpi

In [21]: df3.index = cpi.index

In [22]: final = df3.sort_index(ascending = False)

In [23]: final.head(12)
Out[23]:
              month      qtr    m_cpi       q_cpi  m_factor  q_factor
DATE
2015-09-01  2015-09  2015-Q3  237.945  238.305000  1.000000  1.000000
2015-08-01  2015-08  2015-Q3  238.316  238.305000  0.998443  1.000000
2015-07-01  2015-07  2015-Q3  238.654  238.305000  0.997029  1.000000
2015-06-01  2015-06  2015-Q2  238.638  237.680667  0.997096  1.002627
2015-05-01  2015-05  2015-Q2  237.805  237.680667  1.000589  1.002627
2015-04-01  2015-04  2015-Q2  236.599  237.680667  1.005689  1.002627
2015-03-01  2015-03  2015-Q1  236.119  234.849333  1.007733  1.014714
2015-02-01  2015-02  2015-Q1  234.722  234.849333  1.013731  1.014714
2015-01-01  2015-01  2015-Q1  233.707  234.849333  1.018134  1.014714
2014-12-01  2014-12  2014-Q4  234.812  236.132000  1.013343  1.009202
2014-11-01  2014-11  2014-Q4  236.151  236.132000  1.007597  1.009202
2014-10-01  2014-10  2014-Q4  237.433  236.132000  1.002156  1.009202

Fitting Generalized Regression Neural Network with Python

In [1]: # LOAD PACKAGES

In [2]: import pandas as pd

In [3]: import numpy as np

In [4]: from sklearn import preprocessing as pp

In [5]: from sklearn import cross_validation as cv

In [6]: from neupy.algorithms import GRNN as grnn

In [7]: from neupy.functions import mse

In [8]: # DATA PROCESSING

In [9]: df = pd.read_table("csdata.txt")

In [10]: y = df.ix[:, 0]

In [11]: y.describe()
Out[11]:
count    4421.000000
mean        0.090832
std         0.193872
min         0.000000
25%         0.000000
50%         0.000000
75%         0.011689
max         0.998372
Name: LEV_LT3, dtype: float64

In [12]: x = df.ix[:, 1:df.shape[1]]

In [13]: st_x = pp.scale(x)

In [14]: st_x.mean(axis = 0)
Out[14]:
array([  1.88343648e-17,   5.76080438e-17,  -1.76540780e-16,
        -7.71455583e-17,  -3.80705294e-17,   3.79409490e-15,
         4.99487355e-17,  -2.97100804e-15,   3.93261537e-15,
        -8.70310886e-16,  -1.30728071e-15])

In [15]: st_x.std(axis = 0)
Out[15]: array([ 1.,  1.,  1.,  1.,  1.,  1.,  1.,  1.,  1.,  1.,  1.])

In [16]: x_train, x_test, y_train, y_test = cv.train_test_split(st_x, y, train_size = 0.7, random_state = 2015)

In [17]: # TRAIN THE NEURAL NETWORK

In [18]: def try_std(x):
   ....:       nn = grnn(std = x, verbose = False)
   ....:       nn.train(x_train, y_train)
   ....:       y_pred = nn.predict(x_test)
   ....:       print mse(y_pred, y_test)
   ....:

In [19]: # TEST A LIST OF VALUES FOR THE TUNING PARAMETER

In [20]: for x in np.linspace(0.5, 1.5, 11):
   ....:       print x
   ....:       try_std(x)
   ....:
0.5
0.034597892756
0.6
0.0331189699098
0.7
0.0323384657283
0.8
0.0319580849146
0.9
0.0318001764256
1.0
0.031751821704
1.1
0.031766356369
1.2
0.03183082142
1.3
0.0319348198865
1.4
0.0320623872248
1.5
0.03219800235

Modeling Frequency in Operational Losses with Python

Poisson and Negative Binomial regressions are two popular approaches to model frequency measures in the operational loss and can be implemented in Python with the statsmodels package as below:

In [1]: import pandas as pd

In [2]: import statsmodels.api as sm

In [3]: import statsmodels.formula.api as smf

In [4]: df = pd.read_csv(&quot;AutoCollision.csv&quot;)

In [5]: # FITTING A POISSON REGRESSION

In [6]: poisson = smf.glm(formula = &quot;Claim_Count ~ Age + Vehicle_Use&quot;, data = df, family = sm.families.Poisson(sm.families.links.log))

In [7]: poisson.fit().summary()
Out[7]:
&lt;class 'statsmodels.iolib.summary.Summary'&gt;
&quot;&quot;&quot;
                 Generalized Linear Model Regression Results
==============================================================================
Dep. Variable:            Claim_Count   No. Observations:                   32
Model:                            GLM   Df Residuals:                       21
Model Family:                 Poisson   Df Model:                           10
Link Function:                    log   Scale:                             1.0
Method:                          IRLS   Log-Likelihood:                -204.40
Date:                Tue, 08 Dec 2015   Deviance:                       184.72
Time:                        20:31:27   Pearson chi2:                     184.
No. Iterations:                     9
=============================================================================================
                                coef    std err          z      P&gt;|z|      [95.0% Conf. Int.]
---------------------------------------------------------------------------------------------
Intercept                     2.3702      0.110     21.588      0.000         2.155     2.585
Age[T.21-24]                  1.4249      0.118     12.069      0.000         1.193     1.656
Age[T.25-29]                  2.3465      0.111     21.148      0.000         2.129     2.564
Age[T.30-34]                  2.5153      0.110     22.825      0.000         2.299     2.731
Age[T.35-39]                  2.5821      0.110     23.488      0.000         2.367     2.798
Age[T.40-49]                  3.2247      0.108     29.834      0.000         3.013     3.437
Age[T.50-59]                  3.0019      0.109     27.641      0.000         2.789     3.215
Age[T.60+]                    2.6391      0.110     24.053      0.000         2.424     2.854
Vehicle_Use[T.DriveLong]      0.9246      0.036     25.652      0.000         0.854     0.995
Vehicle_Use[T.DriveShort]     1.2856      0.034     37.307      0.000         1.218     1.353
Vehicle_Use[T.Pleasure]       0.1659      0.041      4.002      0.000         0.085     0.247
=============================================================================================
&quot;&quot;&quot;

In [8]: # FITTING A NEGATIVE BINOMIAL REGRESSION

In [9]: nbinom = smf.glm(formula = &quot;Claim_Count ~ Age + Vehicle_Use&quot;, data = df, family = sm.families.NegativeBinomial(sm.families.links.log))

In [10]: nbinom.fit().summary()
Out[10]:
&lt;class 'statsmodels.iolib.summary.Summary'&gt;
&quot;&quot;&quot;
                 Generalized Linear Model Regression Results
==============================================================================
Dep. Variable:            Claim_Count   No. Observations:                   32
Model:                            GLM   Df Residuals:                       21
Model Family:        NegativeBinomial   Df Model:                           10
Link Function:                    log   Scale:                 0.0646089484752
Method:                          IRLS   Log-Likelihood:                -198.15
Date:                Tue, 08 Dec 2015   Deviance:                       1.4436
Time:                        20:31:27   Pearson chi2:                     1.36
No. Iterations:                    11
=============================================================================================
                                coef    std err          z      P&gt;|z|      [95.0% Conf. Int.]
---------------------------------------------------------------------------------------------
Intercept                     2.2939      0.153     14.988      0.000         1.994     2.594
Age[T.21-24]                  1.4546      0.183      7.950      0.000         1.096     1.813
Age[T.25-29]                  2.4133      0.183     13.216      0.000         2.055     2.771
Age[T.30-34]                  2.5636      0.183     14.042      0.000         2.206     2.921
Age[T.35-39]                  2.6259      0.183     14.384      0.000         2.268     2.984
Age[T.40-49]                  3.2408      0.182     17.760      0.000         2.883     3.598
Age[T.50-59]                  2.9717      0.183     16.283      0.000         2.614     3.329
Age[T.60+]                    2.6404      0.183     14.463      0.000         2.283     2.998
Vehicle_Use[T.DriveLong]      0.9480      0.128      7.408      0.000         0.697     1.199
Vehicle_Use[T.DriveShort]     1.3402      0.128     10.480      0.000         1.090     1.591
Vehicle_Use[T.Pleasure]       0.3265      0.128      2.548      0.011         0.075     0.578
=============================================================================================
&quot;&quot;&quot;

Although Quasi-Poisson regressions is not currently supported by the statsmodels package, we are still able to estimate the model with the rpy2 package by using R in the back-end. As shown in the output below, parameter estimates in Quasi-Poisson model are identical to the ones in standard Poisson model. In case that we want a flexible model approach for frequency measures in the operational loss forecast without pursuing more complex Negative Binomial model, Quasi-Poisson regression can be considered a serious contender.

In [11]: # FITTING A QUASI-POISSON REGRESSION

In [12]: import rpy2.robjects as ro

In [13]: from rpy2.robjects import pandas2ri

In [14]: pandas2ri.activate()

In [15]: rdf = pandas2ri.py2ri_pandasdataframe(df)

In [16]: qpoisson = ro.r.glm('Claim_Count ~ Age + Vehicle_Use', data = rdf, family = ro.r('quasipoisson(link = &quot;log&quot;)'))

In [17]: print ro.r.summary(qpoisson)

Coefficients:
                      Estimate Std. Error t value Pr(&gt;|t|)
(Intercept)             2.3702     0.3252   7.288 3.55e-07 ***
Age21-24                1.4249     0.3497   4.074 0.000544 ***
Age25-29                2.3465     0.3287   7.140 4.85e-07 ***
Age30-34                2.5153     0.3264   7.705 1.49e-07 ***
Age35-39                2.5821     0.3256   7.929 9.49e-08 ***
Age40-49                3.2247     0.3202  10.072 1.71e-09 ***
Age50-59                3.0019     0.3217   9.331 6.42e-09 ***
Age60+                  2.6391     0.3250   8.120 6.48e-08 ***
Vehicle_UseDriveLong    0.9246     0.1068   8.660 2.26e-08 ***
Vehicle_UseDriveShort   1.2856     0.1021  12.595 2.97e-11 ***
Vehicle_UsePleasure     0.1659     0.1228   1.351 0.191016
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

(Dispersion parameter for quasipoisson family taken to be 8.774501)

    Null deviance: 6064.97  on 31  degrees of freedom
Residual deviance:  184.72  on 21  degrees of freedom
AIC: NA

Number of Fisher Scoring iterations: 4

Modeling Severity in Operational Losses with Python

When modeling severity measurements in the operational loss with Generalized Linear Models, we might have a couple choices based on different distributional assumptions, including Gamma, Inverse Gaussian, and Lognormal. However, based on my observations from the empirical work, the differences in parameter estimates among these three popular candidates are rather immaterial from the practical standpoint.

Below is a demonstration showing how to model the severity with the insurance data under aforementioned three distributions. As shown, albeit with inferential differences, three models show similar coefficients.

In [1]: # LOAD PACKAGES

In [2]: import pandas as pd

In [3]: import numpy as np

In [4]: import statsmodels.api as sm

In [5]: import statsmodels.formula.api as smf

In [6]: df = pd.read_csv(&quot;AutoCollision.csv&quot;)

In [7]: df.head()
Out[7]:
     Age Vehicle_Use  Severity  Claim_Count
0  17-20    Pleasure    250.48           21
1  17-20  DriveShort    274.78           40
2  17-20   DriveLong    244.52           23
3  17-20    Business    797.80            5
4  21-24    Pleasure    213.71           63

In [8]: # FIT A GAMMA REGRESSION

In [9]: gamma = smf.glm(formula = &quot;Severity ~ Age + Vehicle_Use&quot;, data = df, family = sm.families.Gamma(sm.families.links.log))

In [10]: gamma.fit().summary()
Out[10]:
&lt;class 'statsmodels.iolib.summary.Summary'&gt;
&quot;&quot;&quot;
                 Generalized Linear Model Regression Results
==============================================================================
Dep. Variable:               Severity   No. Observations:                   32
Model:                            GLM   Df Residuals:                       21
Model Family:                   Gamma   Df Model:                           10
Link Function:                    log   Scale:                 0.0299607547345
Method:                          IRLS   Log-Likelihood:                -161.35
Date:                Sun, 06 Dec 2015   Deviance:                      0.58114
Time:                        12:59:17   Pearson chi2:                    0.629
No. Iterations:                     8
=============================================================================================
                                coef    std err          z      P&gt;|z|      [95.0% Conf. Int.]
---------------------------------------------------------------------------------------------
Intercept                     6.2413      0.101     61.500      0.000         6.042     6.440
Age[T.21-24]                 -0.2080      0.122     -1.699      0.089        -0.448     0.032
Age[T.25-29]                 -0.2303      0.122     -1.881      0.060        -0.470     0.010
Age[T.30-34]                 -0.2630      0.122     -2.149      0.032        -0.503    -0.023
Age[T.35-39]                 -0.5311      0.122     -4.339      0.000        -0.771    -0.291
Age[T.40-49]                 -0.3820      0.122     -3.121      0.002        -0.622    -0.142
Age[T.50-59]                 -0.3741      0.122     -3.057      0.002        -0.614    -0.134
Age[T.60+]                   -0.3939      0.122     -3.218      0.001        -0.634    -0.154
Vehicle_Use[T.DriveLong]     -0.3573      0.087     -4.128      0.000        -0.527    -0.188
Vehicle_Use[T.DriveShort]    -0.5053      0.087     -5.839      0.000        -0.675    -0.336
Vehicle_Use[T.Pleasure]      -0.5886      0.087     -6.801      0.000        -0.758    -0.419
=============================================================================================
&quot;&quot;&quot;

In [11]: # FIT A INVERSE GAUSSIAN REGRESSION

In [12]: igauss = smf.glm(formula = &quot;Severity ~ Age + Vehicle_Use&quot;, data = df, family = sm.families.InverseGaussian(sm.families.links.log))

In [13]: igauss.fit().summary()
Out[13]:
&lt;class 'statsmodels.iolib.summary.Summary'&gt;
&quot;&quot;&quot;
                 Generalized Linear Model Regression Results
==============================================================================
Dep. Variable:               Severity   No. Observations:                   32
Model:                            GLM   Df Residuals:                       21
Model Family:         InverseGaussian   Df Model:                           10
Link Function:                    log   Scale:               8.73581523073e-05
Method:                          IRLS   Log-Likelihood:                -156.44
Date:                Sun, 06 Dec 2015   Deviance:                    0.0015945
Time:                        13:01:14   Pearson chi2:                  0.00183
No. Iterations:                     7
=============================================================================================
                                coef    std err          z      P&gt;|z|      [95.0% Conf. Int.]
---------------------------------------------------------------------------------------------
Intercept                     6.1776      0.103     59.957      0.000         5.976     6.379
Age[T.21-24]                 -0.1475      0.116     -1.269      0.204        -0.375     0.080
Age[T.25-29]                 -0.1632      0.116     -1.409      0.159        -0.390     0.064
Age[T.30-34]                 -0.2079      0.115     -1.814      0.070        -0.433     0.017
Age[T.35-39]                 -0.4732      0.108     -4.361      0.000        -0.686    -0.261
Age[T.40-49]                 -0.3299      0.112     -2.954      0.003        -0.549    -0.111
Age[T.50-59]                 -0.3206      0.112     -2.866      0.004        -0.540    -0.101
Age[T.60+]                   -0.3465      0.111     -3.115      0.002        -0.565    -0.128
Vehicle_Use[T.DriveLong]     -0.3334      0.084     -3.992      0.000        -0.497    -0.170
Vehicle_Use[T.DriveShort]    -0.4902      0.081     -6.055      0.000        -0.649    -0.332
Vehicle_Use[T.Pleasure]      -0.5743      0.080     -7.206      0.000        -0.731    -0.418
=============================================================================================
&quot;&quot;&quot;

In [14]: # FIT A LOGNORMAL REGRESSION

In [15]: df['Log_Severity'] = np.log(df.Severity)

In [16]: lognormal = smf.glm(formula = &quot;Log_Severity ~ Age + Vehicle_Use&quot;, data = df, family = sm.families.Gaussian())

In [17]: lognormal.fit().summary()
Out[17]:
&lt;class 'statsmodels.iolib.summary.Summary'&gt;
&quot;&quot;&quot;
                 Generalized Linear Model Regression Results
==============================================================================
Dep. Variable:           Log_Severity   No. Observations:                   32
Model:                            GLM   Df Residuals:                       21
Model Family:                Gaussian   Df Model:                           10
Link Function:               identity   Scale:                 0.0265610360381
Method:                          IRLS   Log-Likelihood:                 19.386
Date:                Sun, 06 Dec 2015   Deviance:                      0.55778
Time:                        13:02:12   Pearson chi2:                    0.558
No. Iterations:                     4
=============================================================================================
                                coef    std err          z      P&gt;|z|      [95.0% Conf. Int.]
---------------------------------------------------------------------------------------------
Intercept                     6.1829      0.096     64.706      0.000         5.996     6.370
Age[T.21-24]                 -0.1667      0.115     -1.447      0.148        -0.393     0.059
Age[T.25-29]                 -0.1872      0.115     -1.624      0.104        -0.413     0.039
Age[T.30-34]                 -0.2163      0.115     -1.877      0.061        -0.442     0.010
Age[T.35-39]                 -0.4901      0.115     -4.252      0.000        -0.716    -0.264
Age[T.40-49]                 -0.3347      0.115     -2.904      0.004        -0.561    -0.109
Age[T.50-59]                 -0.3267      0.115     -2.835      0.005        -0.553    -0.101
Age[T.60+]                   -0.3467      0.115     -3.009      0.003        -0.573    -0.121
Vehicle_Use[T.DriveLong]     -0.3481      0.081     -4.272      0.000        -0.508    -0.188
Vehicle_Use[T.DriveShort]    -0.4903      0.081     -6.016      0.000        -0.650    -0.331
Vehicle_Use[T.Pleasure]      -0.5726      0.081     -7.027      0.000        -0.732    -0.413
=============================================================================================
&quot;&quot;&quot;

Estimating Quasi-Poisson Regression with GLIMMIX in SAS

When modeling the frequency measure in the operational risk with regressions, most modelers often prefer Poisson or Negative Binomial regressions as best practices in the industry. However, as an alternative approach, Quasi-Poisson regression provides a more flexible model estimation routine with at least two benefits. First of all, Quasi-Poisson regression is able to address both over-dispersion and under-dispersion by assuming that the variance is a function of the mean such that VAR(Y|X) = Theta * MEAN(Y|X), where Theta > 1 for the over-dispersion and Theta < 1 for the under-dispersion. Secondly, estimated coefficients with Quasi-Poisson regression are identical to the ones with Standard Poisson regression, which is considered the prevailing practice in the industry.

While Quasi-Poisson regression can be easily estimated with glm() in R language, its estimation in SAS is not very straight-forward. Luckily, with GLIMMIX procedure, we can estimate Quasi-Poisson regression by directly specifying the functional relationship between the variance and the mean and making no distributional assumption in the MODEL statement, as demonstrated below.


proc glimmix data = credit_count;
  model MAJORDRG = AGE ACADMOS MINORDRG OWNRENT / link = log solution;
  _variance_ = _mu_;
  random _residual_;
run;
  
/*
              Model Information
 
Data Set                     WORK.CREDIT_COUNT
Response Variable            MAJORDRG        
Response Distribution        Unknown         
Link Function                Log             
Variance Function            _mu_             
Variance Matrix              Diagonal        
Estimation Technique         Quasi-Likelihood
Degrees of Freedom Method    Residual        
 
              Fit Statistics
 
-2 Log Quasi-Likelihood           19125.57
Quasi-AIC  (smaller is better)    19135.57
Quasi-AICC (smaller is better)    19135.58
Quasi-BIC  (smaller is better)    19173.10
Quasi-CAIC (smaller is better)    19178.10
Quasi-HQIC (smaller is better)    19148.09
Pearson Chi-Square                51932.87
Pearson Chi-Square / DF               3.86
 
                       Parameter Estimates
                         Standard
Effect       Estimate       Error       DF    t Value    Pr > |t|
 
Intercept     -1.3793     0.08613    13439     -16.01      <.0001
AGE           0.01039    0.002682    13439       3.88      0.0001
ACADMOS      0.001532    0.000385    13439       3.98      <.0001
MINORDRG       0.4611     0.01348    13439      34.22      <.0001
OWNRENT       -0.1994     0.05568    13439      -3.58      0.0003
Residual       3.8643           .        .        .         .   
*/

For the comparison purpose, we also estimated a Quasi-Poisson regression in R, showing completely identical statistical results.


summary(glm(MAJORDRG ~ AGE + ACADMOS + MINORDRG + OWNRENT, data = credit_count, family = quasipoisson(link = "log")))
  
#               Estimate Std. Error t value Pr(>|t|)   
# (Intercept) -1.3793249  0.0861324 -16.014  < 2e-16 ***
# AGE          0.0103949  0.0026823   3.875 0.000107 ***
# ACADMOS      0.0015322  0.0003847   3.983 6.84e-05 ***
# MINORDRG     0.4611297  0.0134770  34.216  < 2e-16 ***
# OWNRENT     -0.1993933  0.0556757  -3.581 0.000343 ***
# ---
# Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
# 
# (Dispersion parameter for quasipoisson family taken to be 3.864409)
# 
#     Null deviance: 24954  on 13443  degrees of freedom
# Residual deviance: 22048  on 13439  degrees of freedom
# AIC: NA

Some Considerations of Modeling Severity in Operational Losses

In the Loss Distributional Approach (LDA) for Operational Risk models, multiple distributions, including Log Normal, Gamma, Burr, Pareto, and so on, can be considered candidates for the distribution of severity measures. However, the challenge remains in the stress testing exercise, e.g. CCAR, to relate operational losses to macro-economic scenarios denoted by a set of macro-economic attributes.

As a result, a more sensible approach employed in the annual CCAR exercise to model operational losses might be the regression-based modeling approach, which can intuitively link the severity measure of operational losses to macro-economic drivers with a explicit functional form within the framework of Generalized Linear Models (GLM). While 2-parameter Pareto distribution and 3-parameter Burr distribution are theoretically attractive, their implmentations in the regression setting could become difficult and even impractical without the availability of off-shelf modeling tools and variable selection routines. In such situation, Log Normal and Gamma distributional assumptions are much more realistic with successful applications in actuarial practices. For details, please see “Severity Distributions for GLMs” by Fu and Moncher in 2004.

While both Log Normal and Gamma are most popular choices for the severity model, there are pros and cons in each respectively. For instance, while Log Normal distributional assumption is extremely flexible and easy to understand, the predicted outcomes should be adjusted for the estimation bias. Fortunately, both SAS, e.g. SEVERITY PROCEDURE, and R, e.g. fitdistrplus package, provide convenient interfaces for the distribution selection procedure based on goodness-of-fit statistics and information criterion.


library(fitdistrplus)
library(insuranceData)
Fit1 <- fitdist(AutoCollision$Severity, dist = "lnorm", method = "mme")
Fit2 <- fitdist(AutoCollision$Severity, dist = "gamma", method = "mme")
gofstat(list(Fit1, Fit2))

#Goodness-of-fit statistics
#                             1-mme-lnorm 2-mme-gamma
#Kolmogorov-Smirnov statistic   0.1892567   0.1991059
#Cramer-von Mises statistic     0.2338694   0.2927953
#Anderson-Darling statistic     1.5772642   1.9370056
#
#Goodness-of-fit criteria
#                               1-mme-lnorm 2-mme-gamma
#Aikake's Information Criterion    376.2738    381.2264
#Bayesian Information Criterion    379.2053    384.1578

In the above output, Log Normal seems marginally better than Gamma in this particular case. Since either Log(SEVERITY) in Log Normal or SEVERITY in Gamma belongs to exponential distribution family, it is convenient to employ GLM() with related variable selection routines in the model development exercise.


summary(mdl1 <- glm(log(Severity) ~ -1 + Vehicle_Use, data = AutoCollision, family = gaussian(link = "identity")))

#Coefficients:
#                      Estimate Std. Error t value Pr(>|t|)
#Vehicle_UseBusiness    5.92432    0.07239   81.84   <2e-16 ***
#Vehicle_UseDriveLong   5.57621    0.07239   77.03   <2e-16 ***
#Vehicle_UseDriveShort  5.43405    0.07239   75.07   <2e-16 ***
#Vehicle_UsePleasure    5.35171    0.07239   73.93   <2e-16 ***

summary(mdl2 <- glm(Severity ~ -1 + Vehicle_Use, data = AutoCollision, family = Gamma(link = "log")))

#Coefficients:
#                      Estimate Std. Error t value Pr(>|t|)
#Vehicle_UseBusiness    5.97940    0.08618   69.38   <2e-16 ***
#Vehicle_UseDriveLong   5.58072    0.08618   64.76   <2e-16 ***
#Vehicle_UseDriveShort  5.44560    0.08618   63.19   <2e-16 ***
#Vehicle_UsePleasure    5.36225    0.08618   62.22   <2e-16 ***

As shown above, estimated coefficients are very similar in both Log Normal and Gamma regressions and standard erros are different due to different distributional assumptions. However, please note that predicted values of Log Normal regression should be adjusted by (RMSE ^ 2) / 2 before applying EXP().

Are These Losses from The Same Distribution?

In Advanced Measurement Approaches (AMA) for Operational Risk models, the bank needs to segment operational losses into homogeneous segments known as “Unit of Measures (UoM)”, which are often defined by the combination of lines of business (LOB) and Basel II event types. However, how do we support whether the losses in one UoM are statistically different from the ones in another UoM? The answer is to test if the losses from various UoMs are distributionally different or equivalent.

Empirically, Kolmogorov-Smirnov (K-S) test is often used to test if two samples are from the same distribution. In the example below, although x and y share the same mean, K-S test still shows a significant result due to different variances.

n <- 300
set.seed(2015)
x <- rnorm(n, 0, 1)
y <- rnorm(n, 0, 1.5)

### 2-SAMPLE DISTRIBUTIONAL COMPARISON ###
ks.test(x, y, alternative = "two.sided")
#         Two-sample Kolmogorov-Smirnov test
#
# data:  x and y
# D = 0.1567, p-value = 0.001268
# alternative hypothesis: two-sided

However, K-S test cannot be generalized to K-sample cases, where K > 2. In such scenario, the univariate coverage test or the more general multivariate MRPP test might be more appropriate. The Blossom package developed by Talbert and Cade (https://www.fort.usgs.gov/products/23735) provides convenient functions implementing both tests, as shown below.

z <- rnorm(n, 0, 2)
df <- data.frame(x = c(x, y, z), g = unlist(lapply(c(1, 2, 3), rep, n)))

### K-SAMPLE DISTRIBUTIONAL COMPARISON ###
# COVERAGE TEST FOR THE UNIVARIATE RESPONSES
library(Blossom)
ctest <- coverage(df$x, df$g)
summary(ctest)
# Results:
#        Observed coverage statistic             :  1.870273
#        Mean of coverage statistic              :  1.774817
#        Estimated variance of coverage statistic:  0.002275862
#        Standard deviation of the variance
#         of the coverage statistic              :  5.108031e-05
#
#        Observed standardized coverage statistic:  2.00093
#        Skewness of observed coverage statistic :  0.08127759
#        Probability (Pearson Type III)
#        of a larger or equal coverage statistic :  0.02484709
#        Probability (Resampled)
#        of a largeror equal coverage statistic  :  0.02475*

# MULTIRESPONSE PERMUTATION PROCEDURE FOR MULTIVARIATE RESPONSES
mtest <- mrpp(x, g, df)
summary(mtest)
# Results:
#        Delta Observed                :  1.676303
#        Delta Expected                :  1.708194
#        Delta Variance                :  4.262303e-06
#        Delta Skewness                :  -1.671773
#
#        Standardized test statistic   :  -15.44685
#        Probability (Pearson Type III)
#        of a smaller or equal delta   :  9.433116e-09***

Granger Causality Test

# READ QUARTERLY DATA FROM CSV
library(zoo)
ts1 <- read.zoo('Documents/data/macros.csv', header = T, sep = ",", FUN = as.yearqtr)

# CONVERT THE DATA TO STATIONARY TIME SERIES
ts1$hpi_rate <- log(ts1$hpi / lag(ts1$hpi))
ts1$unemp_rate <- log(ts1$unemp / lag(ts1$unemp))
ts2 <- ts1[1:nrow(ts1) - 1, c(3, 4)]

# METHOD 1: LMTEST PACKAGE
library(lmtest)
grangertest(unemp_rate ~ hpi_rate, order = 1, data = ts2)
# Granger causality test
#
# Model 1: unemp_rate ~ Lags(unemp_rate, 1:1) + Lags(hpi_rate, 1:1)
# Model 2: unemp_rate ~ Lags(unemp_rate, 1:1)
#   Res.Df Df      F  Pr(>F)
# 1     55
# 2     56 -1 4.5419 0.03756 *
# ---
# Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

# METHOD 2: VARS PACKAGE
library(vars)
var <- VAR(ts2, p = 1, type = "const")
causality(var, cause = "hpi_rate")$Granger
#         Granger causality H0: hpi_rate do not Granger-cause unemp_rate
#
# data:  VAR object var
# F-Test = 4.5419, df1 = 1, df2 = 110, p-value = 0.0353

# AUTOMATICALLY SEARCH FOR THE MOST SIGNIFICANT RESULT
for (i in 1:4)
  {
  cat("LAG =", i)
  print(causality(VAR(ts2, p = i, type = "const"), cause = "hpi_rate")$Granger)
  }

Read A Block of Spreadsheet with R

In R, there are two ways to read a block of the spreadsheet, e.g. xlsx file, as the one shown below.

The xlsx package provides the most intuitive interface with readColumns() function by explicitly defining the starting and the ending columns and rows.

library(xlsx)
file <- loadWorkbook("C:\\Documents and Settings\\Administrator\\Desktop\\test.xlsx")
df1 <- readColumns(getSheets(file)[[1]], startColumn = 3, endColumn = 5, startRow = 5, endRow = 8, header = T)
df1
#   X Y          Z
# 1 1 A 2015-01-01
# 2 2 B 2015-02-01
# 3 3 C 2015-03-01

However, if we can define a named range for the block in the excel, the XLConnect package might be more convenient. In the example below, we first defined a range named as “block” within the spreadsheet and then called this named range with readNamedRegionFromFile() function without the necessity of specifying rows and columns.

library(XLConnect)
df2 <- readNamedRegionFromFile("C:\\Documents and Settings\\Administrator\\Desktop\\test.xlsx", "block")
df2
#   X Y          Z
# 1 1 A 2015-01-01
# 2 2 B 2015-02-01
# 3 3 C 2015-03-01

To Difference or Not To Difference?

In the textbook of time series analysis, we’ve been taught to difference the time series in order to have a stationary series, which can be justified by various plots and statistical tests.

In the real-world time series analysis, things are not always as clear as shown in the textbook. For instance, although the ACF plot shows a not-so-slow decay pattern, ADF test however can’t reject the null hypothesis of a unit root. In such cases, many analysts might tend to difference the time series to be on the safe side in their view.

However, is it really a safe practice to difference a time series anyway to have a stationary series to model? In the example below, I will show that inappropriately differencing a time series would lead the model development to an undesirable direction.

First of all, let’s simulate an univariate series under the Gaussian distributional assumption. By theory, this series has to be stationary.

> library(urca)
> library(forecast)
> library(normwhn.test)
> x <- rnorm(100)
> par(mfrow = c(2, 1))
> acf(x)
> pacf(x)
> whitenoise.test(x)
[1] "no. of observations"
[1] 100
[1] "T"
[1] 50
[1] "CVM stat MN"
[1] 0.8687478
[1] "tMN"
[1] -0.9280931
[1] "test value"
[1] 0.6426144
> x.adf <- ur.df(x, type = c("none"), selectlags = "BIC")
> summary(x.adf)

############################################### 
# Augmented Dickey-Fuller Test Unit Root Test # 
############################################### 

Test regression none 


Call:
lm(formula = z.diff ~ z.lag.1 - 1 + z.diff.lag)

Residuals:
     Min       1Q   Median       3Q      Max 
-1.75385 -0.60585 -0.03467  0.61702  3.10100 

Coefficients:
            Estimate Std. Error t value Pr(>|t|)    
z.lag.1    -1.008829   0.143635  -7.024  3.1e-10 ***
z.diff.lag  0.002833   0.101412   0.028    0.978    
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 0.9501 on 96 degrees of freedom
Multiple R-squared:  0.5064,    Adjusted R-squared:  0.4961 
F-statistic: 49.25 on 2 and 96 DF,  p-value: 1.909e-15

Value of test-statistic is: -7.0235 

Critical values for test statistics: 
     1pct  5pct 10pct
tau1 -2.6 -1.95 -1.61

> x.pkss <- ur.kpss(x, type = "mu", lags = "short")
> summary(x.pkss)

####################### 
# KPSS Unit Root Test # 
####################### 

Test is of type: mu with 4 lags. 

Value of test-statistic is: 0.4136 

Critical value for a significance level of: 
                10pct  5pct 2.5pct  1pct
critical values 0.347 0.463  0.574 0.739

> auto.arima(x, ic = 'bic')
Series: x 
ARIMA(0,0,0) with zero mean     

sigma^2 estimated as 0.8829:  log likelihood=-135.67
AIC=273.34   AICc=273.38   BIC=275.94

As shown in the above output:
1) Since x is simulated with the normal assumption, the series should be a white noise by definition.
2) ACF plot shows no auto-correlation at all, as it should.
3) In ADF test, the null hypothesis of unit root is rejected.
4) In PKSS test, the null hypothesis of stationarity is not rejected.
5) The output from auto.arima() suggests an ARIMA(0, 0, 0) model, which is completely in line with the assumption.

However, what would happen if we take the difference of x anyway?

> difx <- diff(x)
> par(mfrow = c(2, 1))
> acf(difx)
> pacf(difx)
> whitenoise.test(difx)
[1] "no. of observations"
[1] 99
[1] "T"
[1] 49
[1] "CVM stat MN"
[1] 1.669876
[1] "tMN"
[1] 4.689132
[1] "test value"
[1] 0.01904923
> auto.arima(difx, ic = 'bic')
Series: difx 
ARIMA(0,0,1) with zero mean     

Coefficients:
          ma1
      -0.9639
s.e.   0.0327

sigma^2 estimated as 0.901:  log likelihood=-136.64
AIC=277.27   AICc=277.4   BIC=282.46

The above output is quite interesting in a way that we just artificially “created” a model by over-differencing the white noise series.
1) After over-differenced, the series is not a white noise anymore with the null hypothesis rejected, e.g. p-value = 0.02.
2) In addition, the auto.arima() suggests that an ARIMA(0, 0, 1) model might fit the data.

Modeling Count Time Series with tscount Package

The example below shows how to estimate a simple univariate Poisson time series model with the tscount package. While the model estimation is straightforward and yeilds very similar parameter estimates to the ones generated with the acp package (https://statcompute.wordpress.com/2015/03/29/autoregressive-conditional-poisson-model-i), the prediction mechanism is a bit tricky.

1) For the in-sample and the 1-step-ahead predictions:

yhat_[t] = beta0 + beta1 * y_[t – 1] + beta2 * yhat_[t – 1]

2) For the out-of-sample predictions with the observed Y unavailable:

yhat_[t] = beta0 + beta1 * yhat_[t – 1] + beta2 * yhat_[t – 1]

library(tscount)

mdl <- tsglm(cnt$y, model = list(past_obs = 1, past_mean = 1), distr = "poisson")
summary(mdl)
# tsglm(ts = cnt$y, model = list(past_obs = 1, past_mean = 1), 
#     distr = "poisson")
#
# Coefficients:
#              Estimate  Std. Error
# (Intercept)     0.632      0.1774
# beta_1          0.350      0.0687
# alpha_1         0.184      0.1455
# Standard errors obtained by normal approximation.
#
# Link function: identity 
# Distribution family: poisson 
# Number of coefficients: 3 
# Log-likelihood: -279.2738 
# AIC: 564.5476 
# BIC: 573.9195 

### in-sample prediction ###
cnt$yhat <- mdl$fitted.values
tail(cnt, 3)
#     y      yhat
# 166 1 0.8637023
# 167 3 1.1404714
# 168 6 1.8918651

### manually check ###
beta <- mdl$coefficients
pv167 <- beta[1] + beta[2] * cnt$y[166] + beta[3] * cnt$yhat[166] 
#  1.140471
pv168 <- beta[1] + beta[2] * cnt$y[167] + beta[3] * cnt$yhat[167] 
#  1.891865 

### out-of-sample prediction ###
oot <- predict(mdl, n.ahead = 3)
# [1] 3.080667 2.276211 1.846767

### manually check ###
ov2 <- beta[1] + beta[2] * oot[[1]][1] + beta[3] * oot[[1]][1] 
#  2.276211
ov3 <- beta[1] + beta[2] * oot[[1]][2] + beta[3] * oot[[1]][2] 
#  1.846767

rPithon vs. rPython

Similar to rPython, the rPithon package (http://rpithon.r-forge.r-project.org) allows users to execute Python code from R and exchange the data between Python and R. However, the underlying mechanisms between these two packages are fundamentally different. Wihle rPithon communicates with Python from R through pipes, rPython accomplishes the same task with json. A major advantage of rPithon over rPython is that multiple Python processes can be started within a R session. However, rPithon is not very robust while exchanging large data objects between R and Python.

rPython Session

library(sqldf)
df_in <- sqldf('select Year, Month, DayofMonth from tbl2008 limit 5000', dbname = '/home/liuwensui/Documents/data/flights.db')
library(rPython)
### R DATA.FRAME TO PYTHON DICTIONARY ###
python.assign('py_dict', df_in)
### PASS PYTHON DICTIONARY BACK TO R LIST
r_list <- python.get('py_dict')
### CONVERT R LIST TO DATA.FRAME
df_out <- data.frame(r_list)
dim(df_out)
# [1] 5000    3
#
# real	0m0.973s
# user	0m0.797s
# sys	0m0.186s

rPithon Session

library(sqldf)
df_in <- sqldf('select Year, Month, DayofMonth from tbl2008 limit 5000', dbname = '/home/liuwensui/Documents/data/flights.db')
library(rPithon)
### R DATA.FRAME TO PYTHON DICTIONARY ###
pithon.assign('py_dict', df_in)
### PASS PYTHON DICTIONARY BACK TO R LIST
r_list <- pithon.get('py_dict')
### CONVERT R LIST TO DATA.FRAME
df_out <- data.frame(r_list)
dim(df_out)
# [1] 5000    3
#
# real	0m0.984s
# user	0m0.771s
# sys	0m0.187s

Autoregressive Conditional Poisson Model – I

Modeling the time series of count outcome is of interest in the operational risk while forecasting the frequency of losses. Below is an example showing how to estimate a simple ACP(1, 1) model, e.g. Autoregressive Conditional Poisson, without covariates with ACP package.

library(acp)

### acp(1, 1) without covariates ###
mdl <- acp(y ~ -1, data = cnt)
summary(mdl)
# acp.formula(formula = y ~ -1, data = cnt)
#
#   Estimate   StdErr t.value   p.value    
# a 0.632670 0.169027  3.7430 0.0002507 ***
# b 0.349642 0.067414  5.1865 6.213e-07 ***
# c 0.184509 0.134154  1.3753 0.1708881    

### generate predictions ###
f <- predict(mdl)
pred <- data.frame(yhat = f, cnt)
tail(pred, 5)
#          yhat y
# 164 1.5396921 1
# 165 1.2663993 0
# 166 0.8663321 1
# 167 1.1421586 3
# 168 1.8923355 6

### calculate predictions manually ###
pv167 <- mdl$coef[1] + mdl$coef[2] * pred$y[166] + mdl$coef[3] * pred$yhat[166] 
# [1] 1.142159

pv168 <- mdl$coef[1] + mdl$coef[2] * pred$y[167] + mdl$coef[3] * pred$yhat[167] 
# [1] 1.892336

plot.ts(pred, main = "Predictions")

Ensemble Learning with Cubist Model

The tree-based Cubist model can be easily used to develop an ensemble classifier with a scheme called “committees”. The concept of “committees” is similar to the one of “boosting” by developing a series of trees sequentially with adjusted weights. However, the final prediction is the simple average of predictions from all “committee” members, an idea more close to “bagging”.

Below is a demonstration showing how to use the train() function in the caret package to select the optimal number of “committees” in the ensemble model with cubist, e.g. 100 in the example. As shown, the ensemble model is able to outperform the standalone model by ~4% in a separate testing dataset.

data(Boston, package = "MASS")
X <- Boston[, 1:13]
Y <- log(Boston[, 14])

# SAMPLE THE DATA
set.seed(2015)
rows <- sample(1:nrow(Boston), nrow(Boston) - 100)
X1 <- X[rows, ]
X2 <- X[-rows, ]
Y1 <- Y[rows]
Y2 <- Y[-rows]

pkgs <- c('doMC', 'Cubist', 'caret')
lapply(pkgs, require, character.only = T)
registerDoMC(core = 7)

# TRAIN A STANDALONE MODEL FOR COMPARISON 
mdl1 <- cubist(x = X1, y = Y1, control = cubistControl(unbiased = TRUE,  label = "log_medv", seed = 2015))
print(cor(Y2, predict(mdl1, newdata = X2) ^ 2))
# [1] 0.923393

# SEARCH FOR THE OPTIMIAL NUMBER OF COMMITEES
test <- train(x = X1, y = Y1, "cubist", tuneGrid = expand.grid(.committees = seq(10, 100, 10), .neighbors = 0), trControl = trainControl(method = 'cv'))
print(test)
# OUTPUT SHOWING A HIGHEST R^2 WHEN # OF COMMITEES = 100
#  committees  RMSE       Rsquared   RMSE SD     Rsquared SD
#   10         0.1607422  0.8548458  0.04166821  0.07783100 
#   20         0.1564213  0.8617020  0.04223616  0.07858360 
#   30         0.1560715  0.8619450  0.04015586  0.07534421 
#   40         0.1562329  0.8621699  0.03904749  0.07301656 
#   50         0.1563900  0.8612108  0.03904703  0.07342892 
#   60         0.1558986  0.8620672  0.03819357  0.07138955 
#   70         0.1553652  0.8631393  0.03849417  0.07173025 
#   80         0.1552432  0.8629853  0.03887986  0.07254633 
#   90         0.1548292  0.8637903  0.03880407  0.07182265 
#  100         0.1547612  0.8638320  0.03953242  0.07354575 

mdl2 <- cubist(x = X1, y = Y1, committees = 100, control = cubistControl(unbiased = TRUE,  label = "log_medv", seed = 2015))
print(cor(Y2, predict(mdl2, newdata = X2) ^ 2))
# [1] 0.9589031

Model Segmentation with Cubist

Cubist is a tree-based model with a OLS regression attached to each terminal node and is somewhat similar to mob() function in the Party package (https://statcompute.wordpress.com/2014/10/26/model-segmentation-with-recursive-partitioning). Below is a demonstrate of cubist() model with the classic Boston housing data.

pkgs <- c('MASS', 'Cubist', 'caret')
lapply(pkgs, require, character.only = T)

data(Boston)
X <- Boston[, 1:13]
Y <- log(Boston[, 14])

### TRAIN THE MODEL ###
mdl <- cubist(x = X, y = Y, control = cubistControl(unbiased = TRUE,  label = "log_medv", seed = 2015, rules = 5))
summary(mdl)
#  Rule 1: [94 cases, mean 2.568824, range 1.609438 to 3.314186, est err 0.180985]
#
#    if
#	nox > 0.671
#    then
#	log_medv = 1.107315 + 0.588 dis + 2.92 nox - 0.0287 lstat - 0.2 rm
#	           - 0.0065 crim
#
#  Rule 2: [39 cases, mean 2.701933, range 1.94591 to 3.314186, est err 0.202473]
#
#    if
#	nox <= 0.671
#	lstat > 19.01
#    then
#	log_medv = 3.935974 - 1.68 nox - 0.0076 lstat + 0.0035 rad - 0.00017 tax
#	           - 0.013 dis - 0.0029 crim + 0.034 rm - 0.011 ptratio
#	           + 0.00015 black + 0.0003 zn
#
#  Rule 3: [200 cases, mean 2.951007, range 2.116256 to 3.589059, est err 0.100825]
#
#    if
#	rm <= 6.232
#	dis > 1.8773
#    then
#	log_medv = 2.791381 + 0.152 rm - 0.0147 lstat + 0.00085 black
#	           - 0.031 dis - 0.027 ptratio - 0.0017 age + 0.0031 rad
#	           - 0.00013 tax - 0.0025 crim - 0.12 nox + 0.0002 zn
#
#  Rule 4: [37 cases, mean 3.038195, range 2.341806 to 3.912023, est err 0.184200]
#
#    if
#	dis <= 1.8773
#	lstat <= 19.01
#    then
#	log_medv = 5.668421 - 1.187 dis - 0.0469 lstat - 0.0122 crim
#
#  Rule 5: [220 cases, mean 3.292121, range 2.261763 to 3.912023, est err 0.093716]
#
#    if
#	rm > 6.232
#	lstat <= 19.01
#    then
#	log_medv = 2.419507 - 0.033 lstat + 0.238 rm - 0.0089 crim + 0.0082 rad
#	           - 0.029 dis - 0.00035 tax + 0.0006 black - 0.024 ptratio
#	           - 0.0006 age - 0.12 nox + 0.0002 zn
#
# Evaluation on training data (506 cases):
#
#    Average  |error|           0.100444
#    Relative |error|               0.33
#    Correlation coefficient        0.94
#
#	Attribute usage:
#	  Conds  Model
#
#	   71%    94%    rm
#	   50%   100%    lstat
#	   40%   100%    dis
#	   23%    94%    nox
#	         100%    crim
#	          78%    zn
#	          78%    rad
#	          78%    tax
#	          78%    ptratio
#	          78%    black
#	          71%    age

### VARIABLE IMPORTANCE ###
varImp(mdl)
#        Overall
# rm         82.5
# lstat      75.0
# dis        70.0
# nox        58.5
# crim       50.0
# zn         39.0
# rad        39.0
# tax        39.0
# ptratio    39.0
# black      39.0
# age        35.5
# indus       0.0
# chas        0.0

Query Pandas DataFrame with SQL

Similar to SQLDF package providing a seamless interface between SQL statement and R data.frame, PANDASQL allows python users to use SQL querying Pandas DataFrames.

Below are some examples showing how to use PANDASQL to do SELECT / AGGREGATE / JOIN operations. More information is also available on the GitHub (https://github.com/yhat/pandasql).

In [1]: import sas7bdat as sas

In [2]: import pandas as pd

In [3]: import pandasql as pdsql

In [4]: data = sas.SAS7BDAT("accepts.sas7bdat")

In [5]: df = data.toDataFrame()

In [6]: pysql = lambda q: pdsql.sqldf(q, globals())

In [7]: ### SELECT ###

In [8]: str1 = "select bureau_score, ltv from df where bureau_score < 600 and ltv > 100 limit 3;"

In [9]: df1 = pysql(str1)

In [10]: df1
Out[10]: 
   bureau_score  ltv
0           590  103
1           575  120
2           538  113

In [11]: ### AGGREGATE ###

In [12]: str2 = "select ltv, min(bureau_score) as min_score, max(bureau_score) as max_score from df group by ltv order by ltv DESC;"

In [13]: df2 = pysql(str2);

In [14]: df2.head(3)
Out[14]: 
   ltv  min_score  max_score
0  176        709        709
1  168        723        723
2  167        688        688

In [15]: ### JOIN ###

In [16]: str3 = "select b.*, a.bureau_score from df a inner join df2 b on a.ltv = b.ltv order by ltv DESC;"

In [17]: df3 = pysql(str3)

In [18]: df3.head(3)
Out[18]: 
   ltv  min_score  max_score  bureau_score
0  176        709        709           709
1  168        723        723           723
2  167        688        688           688

Flexible Beta Modeling

library(betareg)
library(sas7bdat)

df1 <- read.sas7bdat('lgd.sas7bdat')
df2 <- df1[df1$y < 1, ]

fml <- as.formula('y ~ x2 + x3 + x4 + x5 + x6 | x3 + x4 | x1 + x2')

### LATENT-CLASS BETA REGRESSION: AIC = -565 ###
mdl1 <- betamix(fml, data = df2, k = 2, FLXcontrol = list(iter.max = 500, minprior = 0.1))
print(mdl1)
#betamix(formula = fml, data = df2, k = 2, FLXcontrol = list(iter.max = 500, 
#    minprior = 0.1))
#
#Cluster sizes:
#  1   2 
#157 959 

summary(mdl1, which = 'concomitant')
#            Estimate Std. Error z value Pr(>|z|)   
#(Intercept) -1.35153    0.41988 -3.2188 0.001287 **
#x1           2.92537    1.13046  2.5878 0.009660 **
#x2           2.82809    1.42139  1.9897 0.046628 * 

summary(mdl1)
#$Comp.1$mean
#              Estimate Std. Error z value  Pr(>|z|)    
#(Intercept) -0.8963228  1.0385545 -0.8630 0.3881108    
#x2           3.1769062  0.6582108  4.8266 1.389e-06 ***
#x3          -0.0520060  0.0743714 -0.6993 0.4843805    
#x4           4.9642998  1.4204071  3.4950 0.0004741 ***
#x5           0.0021647  0.0022659  0.9554 0.3393987    
#x6           0.0248573  0.0062982  3.9467 7.922e-05 ***
#
#$Comp.1$precision
#            Estimate Std. Error z value  Pr(>|z|)    
#(Intercept) -5.37817    1.44817 -3.7138 0.0002042 ***
#x3           0.45009    0.10094  4.4589 8.239e-06 ***
#x4           3.06969    1.41450  2.1702 0.0299948 *  
#
#$Comp.2
#$Comp.2$mean
#              Estimate Std. Error z value  Pr(>|z|)    
#(Intercept) -1.8737088  0.3888454 -4.8186 1.445e-06 ***
#x2          -0.6318086  0.1892501 -3.3385 0.0008424 ***
#x3           0.1786425  0.0265428  6.7303 1.693e-11 ***
#x4           2.0646272  0.5256002  3.9281 8.561e-05 ***
#x5          -0.0064821  0.0014053 -4.6127 3.974e-06 ***
#x6           0.0018828  0.0022873  0.8231 0.4104318    
#
#$Comp.2$precision
#            Estimate Std. Error z value Pr(>|z|)   
#(Intercept) 1.092403   0.616974  1.7706 0.076630 . 
#x3          0.017330   0.040024  0.4330 0.665029   
#x4          2.138812   0.717702  2.9801 0.002882 **


### BETA REGRESSION TREE: AIC = -578 ###
mdl2 <- betatree(fml, data = df2, minsplit = 100)
print(mdl2)
#1) x2 <= 0.08584895; criterion = 1, statistic = 154.716
#  2)*  weights = 121 
#Terminal node model
#betaReg fit with coefficients:
#      (Intercept)                 x2                 x3                 x4  
#         3.307359          -2.854351          -0.262815          -2.414481  
#               x5                 x6  (phi)_(Intercept)           (phi)_x3  
#        -0.007555           0.030346           1.003767          -0.002907  
#         (phi)_x4  
#         2.528602  
#
#1) x2 > 0.08584895
#  3)*  weights = 995 
#Terminal node model
#betaReg fit with coefficients:
#      (Intercept)                 x2                 x3                 x4  
#        -2.134931          -0.194830           0.168136           2.811077  
#               x5                 x6  (phi)_(Intercept)           (phi)_x3  
#        -0.002070           0.004677          -1.018102           0.151778  
#         (phi)_x4  
#         2.142995  

sctest(mdl2, node = 1)
#                x1       x2
#statistic 113.4781 154.7165
#p.value     0.0000   0.0000

summary(mdl2)
#$`2`
#
#Coefficients (mean model with logit link):
#             Estimate Std. Error z value Pr(>|z|)    
#(Intercept)  3.307359   1.091289   3.031 0.002440 ** 
#x2          -2.854351   3.644882  -0.783 0.433561    
#x3          -0.262815   0.074716  -3.518 0.000436 ***
#x4          -2.414481   1.785447  -1.352 0.176276    
#x5          -0.007555   0.002788  -2.710 0.006738 ** 
#x6           0.030346   0.006833   4.441 8.96e-06 ***
#
#Phi coefficients (precision model with log link):
#             Estimate Std. Error z value Pr(>|z|)
#(Intercept)  1.003767   1.353496   0.742    0.458
#x3          -0.002907   0.090816  -0.032    0.974
#x4           2.528602   2.344241   1.079    0.281

#$`3`
#
#Coefficients (mean model with logit link):
#             Estimate Std. Error z value Pr(>|z|)    
#(Intercept) -2.134931   0.337784  -6.320 2.61e-10 ***
#x2          -0.194830   0.144062  -1.352  0.17625    
#x3           0.168136   0.022521   7.466 8.28e-14 ***
#x4           2.811077   0.387788   7.249 4.20e-13 ***
#x5          -0.002070   0.001136  -1.822  0.06848 .  
#x6           0.004677   0.001770   2.643  0.00822 ** 
#
#Phi coefficients (precision model with log link):
#            Estimate Std. Error z value Pr(>|z|)    
#(Intercept) -1.01810    0.46575  -2.186 0.028821 *  
#x3           0.15178    0.03057   4.965 6.88e-07 ***
#x4           2.14300    0.56979   3.761 0.000169 ***

Model Segmentation with Recursive Partitioning

library(party)

df1 <- read.csv("credit_count.csv")
df2 <- df1[df1$CARDHLDR == 1, ]

mdl <- mob(DEFAULT ~ MAJORDRG + MINORDRG + INCOME + OWNRENT | AGE + SELFEMPL, data = df2, family = binomial(), control = mob_control(minsplit = 1000), model = glinearModel)

print(mdl)
#1) AGE <= 22.91667; criterion = 1, statistic = 48.255
#  2)*  weights = 1116 
#Terminal node model
#Binomial GLM with coefficients:
#(Intercept)     MAJORDRG     MINORDRG       INCOME      OWNRENT  
# -0.6651905    0.0633978    0.5182472   -0.0006038    0.3071785  
#
#1) AGE > 22.91667
#  3)*  weights = 9383 
#Terminal node model
#Binomial GLM with coefficients:
#(Intercept)     MAJORDRG     MINORDRG       INCOME      OWNRENT  
# -1.4117010    0.2262091    0.2067880   -0.0003822   -0.2127193  

### TEST FOR STRUCTURAL CHANGE ###
sctest(mdl, node = 1)
#                   AGE    SELFEMPL
#statistic 4.825458e+01 20.88612025
#p.value   1.527484e-07  0.04273836

summary(mdl, node = 2)
#Coefficients:
#              Estimate Std. Error z value Pr(>|z|)    
#(Intercept) -0.6651905  0.2817480  -2.361 0.018229 *  
#MAJORDRG     0.0633978  0.3487305   0.182 0.855743    
#MINORDRG     0.5182472  0.2347656   2.208 0.027278 *  
#INCOME      -0.0006038  0.0001639  -3.685 0.000229 ***
#OWNRENT      0.3071785  0.2028491   1.514 0.129945    

summary(mdl, node = 3)
#Coefficients:
#              Estimate Std. Error z value Pr(>|z|)    
#(Intercept) -1.412e+00  1.002e-01 -14.093  < 2e-16 ***
#MAJORDRG     2.262e-01  7.067e-02   3.201  0.00137 ** 
#MINORDRG     2.068e-01  4.925e-02   4.199 2.68e-05 ***
#INCOME      -3.822e-04  4.186e-05  -9.131  < 2e-16 ***
#OWNRENT     -2.127e-01  7.755e-02  -2.743  0.00609 **

Estimating a Beta Regression with The Variable Dispersion in R

pkgs <- c('sas7bdat', 'betareg', 'lmtest')
lapply(pkgs, require, character.only = T)

df1 <- read.sas7bdat("lgd.sas7bdat")
df2 <- df1[which(df1$y < 1), ]

xvar <- paste("x", 1:7, sep = '', collapse = " + ")
fml1 <- as.formula(paste("y ~ ", xvar))
fml2 <- as.formula(paste("y ~ ", xvar, "|", xvar))

# FIT A BETA MODEL WITH THE FIXED PHI
beta1 <- betareg(fml1, data = df2)
summary(beta1)

# Coefficients (mean model with logit link):
#              Estimate Std. Error z value Pr(>|z|)    
# (Intercept) -1.500242   0.329670  -4.551 5.35e-06 ***
# x1           0.007516   0.026020   0.289 0.772680    
# x2           0.429756   0.135899   3.162 0.001565 ** 
# x3           0.099202   0.022285   4.452 8.53e-06 ***
# x4           2.465055   0.415657   5.931 3.02e-09 ***
# x5          -0.003687   0.001070  -3.446 0.000568 ***
# x6           0.007181   0.001821   3.943 8.06e-05 ***
# x7           0.128796   0.186715   0.690 0.490319    
#
# Phi coefficients (precision model with identity link):
#       Estimate Std. Error z value Pr(>|z|)    
# (phi)   3.6868     0.1421   25.95   <2e-16 ***

# FIT A BETA MODEL WITH THE VARIABLE PHI
beta2 <- betareg(fml2, data = df2)
summary(beta2)

# Coefficients (mean model with logit link):
#              Estimate Std. Error z value Pr(>|z|)    
# (Intercept) -1.996661   0.336445  -5.935 2.95e-09 ***
# x1           0.007033   0.026809   0.262 0.793072    
# x2           0.371098   0.135186   2.745 0.006049 ** 
# x3           0.133356   0.022624   5.894 3.76e-09 ***
# x4           2.951245   0.401493   7.351 1.97e-13 ***
# x5          -0.003475   0.001119  -3.105 0.001902 ** 
# x6           0.006528   0.001884   3.466 0.000529 ***
# x7           0.100274   0.190915   0.525 0.599424    
#
# Phi coefficients (precision model with log link):
#              Estimate Std. Error z value Pr(>|z|)    
# (Intercept) -0.454399   0.452302  -1.005 0.315072    
# x1           0.009119   0.035659   0.256 0.798150    
# x2           0.611049   0.188225   3.246 0.001169 ** 
# x3           0.092073   0.030678   3.001 0.002689 ** 
# x4           2.248399   0.579440   3.880 0.000104 ***
# x5          -0.002188   0.001455  -1.504 0.132704    
# x6          -0.000317   0.002519  -0.126 0.899847    
# x7          -0.166226   0.256199  -0.649 0.516457    

# LIKELIHOOD RATIO TEST TO COMPARE BOTH BETA MODELS
lrtest(beta1, beta2) 

# Likelihood ratio test
#
# Model 1: y ~ x1 + x2 + x3 + x4 + x5 + x6 + x7
# Model 2: y ~ x1 + x2 + x3 + x4 + x5 + x6 + x7 | x1 + x2 + x3 + x4 + x5 + x6 + x7
#   #Df LogLik Df Chisq Pr(>Chisq)    
# 1   9 231.55                        
# 2  16 257.24  7 51.38  7.735e-09 ***

Fitting Lasso with Julia

Julia Code

using RDatasets, DataFrames, GLMNet

data = dataset("MASS", "Boston");
y = array(data[:, 14]);
x = array(data[:, 1:13]);

cv = glmnetcv(x, y);
cv.path.betas[:, indmin(cv.meanloss)];
result = DataFrame();
result[:Vars] = names(data)[1:13];
result[:Beta] = cv.path.betas[:, indmin(cv.meanloss)];
result

# | Row | Vars    | Beta       |
# |-----|---------|------------|
# | 1   | Crim    | -0.0983463 |
# | 2   | Zn      | 0.0414416  |
# | 3   | Indus   | 0.0        |
# | 4   | Chas    | 2.68519    |
# | 5   | NOx     | -16.3066   |
# | 6   | Rm      | 3.86694    |
# | 7   | Age     | 0.0        |
# | 8   | Dis     | -1.39602   |
# | 9   | Rad     | 0.252687   |
# | 10  | Tax     | -0.0098268 |
# | 11  | PTRatio | -0.929989  |
# | 12  | Black   | 0.00902588 |
# | 13  | LStat   | -0.5225    |

R Code

library(glmnet)
data(Boston, package = "MASS")

x <- as.matrix(Boston[, 1:13])
y <- as.matrix(Boston[, 14])

cv <- cv.glmnet(x, y, nfolds = 10) 	
mdl <- glmnet(x, y, lambda = cv$lambda.min)
mdl$beta

# crim     -0.098693203
# zn        0.041588291
# indus     .          
# chas      2.681633344
# nox     -16.354590598
# rm        3.860035926
# age       .          
# dis      -1.399697121
# rad       0.255484621
# tax      -0.009935509
# ptratio  -0.931031828
# black     0.009031422
# lstat    -0.522741592

By-Group Aggregation in Parallel

Similar to the row search, by-group aggregation is another perfect use case to demonstrate the power of split-and-conquer with parallelism.

In the example below, it is shown that the homebrew by-group aggregation with foreach pakage, albeit inefficiently coded, is still a lot faster than the summarize() function in Hmisc package.

load('2008.Rdata')

pkgs <- c('rbenchmark', 'doParallel', 'foreach', 'Hmisc')
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 8)

benchmark(replications = 10,
  summarize = {
    summarize(data[c("Distance", "Month")], data["Month"], colMeans, stat.name = NULL)
  },
  foreach = {
    data2 <- split(data, data$Month)
    test2 <- foreach(i = data2, .combine = rbind) %dopar% (data.frame(Month = unique(i$Month), Distance= mean(i$Distance)))
  }
)

#        test replications elapsed relative user.self sys.self user.child
# 2   foreach           10  19.644     1.00    17.411    1.965      1.528
# 1 summarize           10  30.244     1.54    29.822    0.441      0.000

Vector Search vs. Binary Search

# REFERENCE:
# user2014.stat.ucla.edu/files/tutorial_Matt.pdf

pkgs <- c('data.table', 'rbenchmark')
lapply(pkgs, require, character.only = T)
 
load('2008.Rdata')
dt <- data.table(data)

benchmark(replications = 10, order = "elapsed",
  vector_search = {
    test1 <- dt[ArrTime == 1500 & Origin == 'ABE', ] 
  },
  binary_search = {
    setkey(dt, ArrTime, Origin)
    test2 <- dt[.(1500, 'ABE'), ]
  }
)

#            test replications elapsed relative user.self sys.self user.child
# 2 binary_search           10   0.335    1.000     0.311    0.023          0
# 1 vector_search           10   7.245   21.627     7.102    0.131          0

Row Search in Parallel

I’ve been always wondering whether the efficiency of row search can be improved if the whole data.frame is splitted into chunks and then the row search is conducted within each chunk in parallel.

In the R code below, a comparison is done between the standard row search and the parallel row search with the FOREACH package. The result is very encouraging. For 10 replications, the elapsed time of parallel search is only the fraction of the elapsed time of standard search.

load('2008.Rdata')
data2 <- split(data, 1:8)

library(rbenchmark)
library(doParallel)
registerDoParallel(cores = 8)
library(foreach)

benchmark(replications = 10, order = "elapsed",
  non_parallel = {
    test1 <- data[which(data$ArrTime == 1500 & data$Origin == 'ABE'), ]
  },
  parallel = {
    test2 <- foreach(i = data2, .combine = rbind) %dopar% i[which(i$ArrTime == 1500 & i$Origin == 'ABE'), ]
  }
)
#           test replications elapsed relative user.self sys.self user.child
# 2     parallel           10   2.680    1.000     0.319    0.762     12.078
# 1 non_parallel           10   7.474    2.789     7.339    0.139      0.000

Chain Operations: An Interesting Feature in dplyr Package


library(data.table)
library(dplyr)

data1 <- fread('/home/liuwensui/Downloads/2008.csv', header = T, sep = ',')
dim(data1)
# [1] 7009728      29

data2 <- data1 %.%
           filter(Year = 2008, Month %in% c(1, 2, 3, 4, 5, 6)) %.%
           select(Year, Month, AirTime) %.%
           group_by(Year, Month) %.%
           summarize(avg_time = mean(AirTime, na.rm = TRUE)) %.%
           arrange(desc(avg_time))

print(data2)
#   Year Month avg_time
# 1 2008     3 106.1939
# 2 2008     2 105.3185
# 3 2008     6 104.7604
# 4 2008     1 104.6181
# 5 2008     5 104.3720
# 6 2008     4 104.2694

Efficiency of Importing Large CSV Files in R

### size of csv file: 689.4MB (7,009,728 rows * 29 columns) ###

system.time(read.csv('../data/2008.csv', header = T))
#   user  system elapsed 
# 88.301   2.416  90.716

library(data.table)
system.time(fread('../data/2008.csv', header = T, sep = ',')) 
#   user  system elapsed 
#  4.740   0.048   4.785

library(bigmemory)
system.time(read.big.matrix('../data/2008.csv', header = T))
#   user  system elapsed 
# 59.544   0.764  60.308

library(ff)
system.time(read.csv.ffdf(file = '../data/2008.csv', header = T))
#   user  system elapsed 
# 60.028   1.280  61.335 

library(sqldf)
system.time(read.csv.sql('../data/2008.csv'))
#   user  system elapsed 
# 87.461   3.880  91.447

Julia and SQLite

Similar to R and Pandas in Python, Julia provides a simple yet efficient interface with SQLite database. In addition, it is extremely handy to use sqldf() function, which is almost identical to the sqldf package in R, in SQLite package for data munging.

julia> # LOADING SQLITE PACKAGE

julia> using SQLite

julia> # CONNECT TO THE SQLITE DB FILE 

julia> db = SQLite.connect("/home/liuwensui/Documents/db/sqlitedb/csdata.db")

julia> # SHOW TABLES IN THE DB 

julia> query("select name from sqlite_master where type = 'table'")
1x1 DataFrame
|-------|-----------|
| Row # | name      |
| 1     | tblcsdata |

julia> # PULL DATA FROM THE TABLE

julia> # THE DATA WOULD BE AUTOMATICALLY SAVED AS A DATAFRAME

julia> df1 = query("select * from tblcsdata");

julia> head(df1, 2)
6x12 DataFrame
|-------|---------|----------|-----------|---------|-----------|----------|-----|-----------|-------|-------|-------|-------|
| Row # | LEV_LT3 | TAX_NDEB | COLLAT1   | SIZE1   | PROF2     | GROWTH2  | AGE | LIQ       | IND2A | IND3A | IND4A | IND5A |
| 1     | 0.0     | 0.530298 | 0.0791719 | 13.132  | 0.0820164 | 1.16649  | 53  | 0.385779  | 0     | 0     | 1     | 0     |
| 2     | 0.0     | 0.370025 | 0.0407454 | 12.1326 | 0.0826154 | 11.092   | 54  | 0.224123  | 1     | 0     | 0     | 0     |

julia> # SELECT DATA FROM THE TABLE WITH SQLDF() FUNCTION 

julia> df2 = sqldf("select * from df1 where AGE between 25 and 30");

julia> # SUMMARIZE DATA WITH SQLDF() FUNCTION 

julia> df3 = sqldf("select age, avg(LEV_LT3) as avg_lev from df2 group by age")
6x2 DataFrame
|-------|-----|-----------|
| Row # | AGE | avg_lev   |
| 1     | 25  | 0.0923202 |
| 2     | 26  | 0.0915009 |
| 3     | 27  | 0.0579876 |
| 4     | 28  | 0.104191  |
| 5     | 29  | 0.0764582 |
| 6     | 30  | 0.0806471 |

Simplex Model in R

R CODE

library(simplexreg)
library(foreign)

### http://fmwww.bc.edu/repec/bocode/k/k401.dta ###
data <- read.dta("/home/liuwensui/Documents/data/k401.dta")

mdl <- simplexreg(prate ~ mrate + totemp + age + sole|mrate + totemp + age + sole, type = "hetero", link = "logit", data = data, subset = prate < 1)

summary(mdl)

R OUTPUT

simplexreg(formula = prate ~ mrate + totemp + age + sole | mrate + totemp + 
    age + sole, data = data, subset = prate < 1, type = "hetero", link = "logit")

standard Pearson residuals:
    Min      1Q  Median      3Q     Max 
-6.1724 -0.5369  0.0681  0.5379  2.2987 

Coefficients (mean model with logit link):
              Estimate Std. Error z value Pr(>|z|)    
(Intercept)  8.817e-01  4.036e-02  21.848  < 2e-16 ***
mrate        2.710e-01  4.880e-02   5.553 2.81e-08 ***
totemp      -8.454e-06  1.164e-06  -7.266 3.70e-13 ***
age          2.762e-02  2.702e-03  10.225  < 2e-16 ***
sole         1.079e-01  4.684e-02   2.304   0.0212 *  

Coefficients (dispersion model with log link):
             Estimate Std. Error z value Pr(>|z|)    
(Intercept) 1.668e+00  5.395e-02  30.918  < 2e-16 ***
mrate       8.775e-01  4.472e-02  19.621  < 2e-16 ***
totemp      7.432e-06  1.434e-06   5.182  2.2e-07 ***
age         2.816e-02  3.242e-03   8.688  < 2e-16 ***
sole        7.744e-01  5.966e-02  12.981  < 2e-16 ***
---
Signif. codes:  0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1 

Log-likelihood:  2370,  p-value: 0.4693177 
Deviance: 2711 
Number of Fisher Scoring iterations:  20

SAS CODE & OUTPUT FOR COMPARISON

proc nlmixed data = one tech = trureg maxiter = 100;
  parms b0 = 0  b1 = 0  b2 = 0  b3 = 0  b4 = 0
        c0 = 2  c1 = 0  c2 = 0  c3 = 0  c4 = 0 ;
  xb = b0 + b1 * mrate + b2 * totemp + b3 * age + b4 * sole;
  xc = c0 + c1 * mrate + c2 * totemp + c3 * age + c4 * sole;
  mu_xb = 1 / (1 + exp(-xb));
  s2 = exp(xc);
  v = (prate * (1 - prate)) ** 3;
  d = (prate - mu_xb) ** 2 / (prate * (1 - prate) * mu_xb ** 2 * (1 - mu_xb) ** 2);
  lh = (2 * constant('pi') * s2 * v) ** (-0.5) * exp(-(2 * s2) ** (-1) * d);
  ll = log(lh);
  model prate ~ general(ll);
run;
/*
                       Standard
Parameter   Estimate      Error     DF   t Value   Pr > |t|    Alpha
b0            0.8817    0.03843   2711     22.94     <.0001     0.05
b1            0.2710    0.04540   2711      5.97     <.0001     0.05
b2          -8.45E-6    1.35E-6   2711     -6.26     <.0001     0.05
b3           0.02762   0.002588   2711     10.67     <.0001     0.05
b4            0.1079    0.04792   2711      2.25     0.0244     0.05
c0            1.6680    0.05490   2711     30.38     <.0001     0.05
c1            0.8775    0.07370   2711     11.91     <.0001     0.05
c2          7.431E-6   1.935E-6   2711      3.84     0.0001     0.05
c3           0.02816   0.003224   2711      8.73     <.0001     0.05
c4            0.7744    0.06194   2711     12.50     <.0001     0.05
*/

rPython – R Interface to Python

> library(rPython)
Loading required package: RJSONIO
> ### load r data.frame ###
> data(iris)
> r_df1 <- iris
> class(r_df1)
[1] "data.frame"
> head(r_df1, n = 3)
  Sepal.Length Sepal.Width Petal.Length Petal.Width Species
1          5.1         3.5          1.4         0.2  setosa
2          4.9         3.0          1.4         0.2  setosa
3          4.7         3.2          1.3         0.2  setosa
> ### pass r data.frame to python dict ###
> python.assign('py_dict1', r_df1)
> python.exec('print type(py_dict1)')
<type 'dict'>
> ### convert python dict to pandas DataFrame ###
> python.exec('import pandas as pd')
> python.exec('py_df = pd.DataFrame(py_dict1)')
> python.method.call('py_df', 'info')
<class 'pandas.core.frame.DataFrame'>
Int64Index: 150 entries, 0 to 149
Data columns (total 5 columns):
Petal.Length    150  non-null values
Petal.Width     150  non-null values
Sepal.Length    150  non-null values
Sepal.Width     150  non-null values
Species         150  non-null values
dtypes: float64(4), object(1)NULL
> python.exec('print py_df.head(3)')
   Petal.Length  Petal.Width  Sepal.Length  Sepal.Width Species
0           1.4          0.2           5.1          3.5  setosa
1           1.4          0.2           4.9          3.0  setosa
2           1.3          0.2           4.7          3.2  setosa
> ### convert pandas DataFrame back to dict ###
> python.exec('py_dict2 = py_df.to_dict(outtype = "list")') 
> ### pass python dict back to r list ###
> r_list <- python.get('py_dict2')
> class(r_list)
[1] "list"
> ### convert r list to r data.frame ###
> r_df2 <- data.frame(r_list)
> class(r_df2)
[1] "data.frame"
> head(r_df2, n = 3)
  Petal.Length Sepal.Length Petal.Width Sepal.Width Species
1          1.4          5.1         0.2         3.5  setosa
2          1.4          4.9         0.2         3.0  setosa
3          1.3          4.7         0.2         3.2  setosa

Generate and Retrieve Many Objects with Sequential Names

While coding ensemble methods in data mining with R, e.g. bagging, we often need to generate many data and models objects with sequential names. Below is a quick example how to use assign() function to generate many prediction objects on the fly and then retrieve these predictions with mget() to do the model averaging.

data(Boston, package = "MASS")

for (i in 1:10) {
  set.seed(i)
  smp <- Boston[sample(1:nrow(Boston), nrow(Boston), replace = TRUE), ]
  glm <- glm(medv ~ ., data = smp)
  prd <- predict(glm, Boston)
  ### ASSIGN A LIST OF SEQUENTIAL NAMES TO PREDICTIONS ###
  assign(paste("p", i, sep = ""), prd)
}

### RETURN NAMED OBJECTS TO A LIST ###
plist <- mget(paste('p', 1:i, sep = ''))
### AGGREGATE ALL PREDICTIONS ###
pcols <- do.call('cbind', plist)
pred_medv <- rowSums(pcols) / i

### A SIMPLE FUNCTION CALCULATION R-SQUARE ###
r2 <- function(y, yhat) {
  ybar <- mean(y)
  r2 <- sum((yhat - ybar) ^ 2) / sum((y - ybar) ^ 2)
  return(r2)
}
print(r2(Boston$medv, pred_medv))
# OUTPUT:
# [1] 0.7454225

Prototyping Multinomial Logit with R

Recently, I am working on a new modeling proposal based on the competing risk and need to prototype multinomial logit models with R. There are 2 R packages implementing multinomial logit models that I’ve tested, namely nnet and vgam. Model outputs with iris data are shown below.

data(iris)

### method 1: nnet package ###
library(nnet)
mdl1 <- multinom(Species ~ Sepal.Length, data = iris, model = TRUE)
summary(mdl1)

# Coefficients:
#            (Intercept) Sepal.Length
# versicolor   -26.08339     4.816072
# virginica    -38.76786     6.847957
#
# Std. Errors:
#            (Intercept) Sepal.Length
# versicolor    4.889635    0.9069211
# virginica     5.691596    1.0223867

### method 2: vgam package ### 
library(VGAM)
mdl2 <- vglm(Species ~ Sepal.Length, data = iris, multinomial(refLevel = 1)) 
summary(mdl2)

# Coefficients:
#                Estimate Std. Error z value
# (Intercept):1  -26.0819    4.88924 -5.3346
# (Intercept):2  -38.7590    5.69064 -6.8110
# Sepal.Length:1   4.8157    0.90683  5.3105
# Sepal.Length:2   6.8464    1.02222  6.6976

However, in my view, above methods are not flexible for real-world problems. For instance, there is no off-shelf solution for the variable selection for above multinomial logit models. Instead of building one multinomial logit model, we might develop two separate binomial logit models to accomplish the same task.

### method 3: two binary logit models ### 
iris$y <- ifelse(iris$Species == 'setosa', 0, 1)
mdl31 <- glm(y ~ Sepal.Length, data = iris, subset = (Species != 'virginica'), family = binomial)
summary(mdl31)

#  Coefficients:
#              Estimate Std. Error z value Pr(>|z|)    
# (Intercept)   -27.831      5.434  -5.122 3.02e-07 ***
# Sepal.Length    5.140      1.007   5.107 3.28e-07 ***

mdl32 <- glm(y ~ Sepal.Length, data = iris, subset = (Species != 'versicolor'), family = binomial)
summary(mdl32)

# Coefficients:
#              Estimate Std. Error z value Pr(>|z|)    
# (Intercept)   -38.547      9.557  -4.033 5.50e-05 ***
# Sepal.Length    6.805      1.694   4.016 5.91e-05 ***

As shown above, we can get a set of similar estimated parameters by the third approach with much simpler models.

GRNN and PNN

From the technical prospective, people usually would choose GRNN (general regression neural network) to do the function approximation for the continuous response variable and use PNN (probabilistic neural network) for pattern recognition / classification problems with categorical outcomes. However, from the practical standpoint, it is often not necessary to draw a fine line between GRNN and PNN given the fact that most classification problems in the real world are binary. After reading paper in PNN (http://courses.cs.tamu.edu/rgutier/cpsc636_s10/specht1990pnn.pdf) and in GRNN (http://research.vuse.vanderbilt.edu/vuwal/Paul/Paper/References/grnn.pdf) both by Specht, one shouldn’t be difficult to find out the similarity between two. In particular, for a 2-class classification problem, GRNN should be able to serve the same purpose after converting the 2-class categorical outcome to the numeric response with 0-1 values. In the demonstration below, I am going to show that GRNN and PNN should generate identical predictions with the same smooth parameter.

First of all, let’s train a PNN for a 2-class outcome with cran-pnn package.

pkgs <- c('doParallel', 'foreach', 'pnn')
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 8)

data(norms)
nn1 <- smooth(learn(norms), sigma = 0.5)

pred_pnn <- function(x, nn){
  xlst <- split(x, 1:nrow(x))
  pred <- foreach(i = xlst, .combine = rbind) %dopar% {
    data.frame(prob = guess(nn, as.matrix(i))$probabilities[1], row.names = NULL)
  }
}

print(pred_pnn(norms[1:10, -1], nn1))
#         prob
# 1  0.6794262
# 2  0.5336774
# 3  0.7632387
# 4  0.8103197
# 5  0.6496806
# 6  0.7752137
# 7  0.4138325
# 8  0.7320472
# 9  0.6599813
# 10 0.8015706

Secondly, I also trained a GRNN after converting the categorical outcome above to a dummy response with 0-1 values.

pkgs <- c('pnn', 'doParallel', 'foreach', 'grnn')
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 8)

data(norms)
norm2 <- data.frame(n = ifelse(norms$c == 'A', 1, 0), x = norms$x, y = norms$y)
detach('package:pnn')

nn2 <- smooth(learn(norm2), sigma = 0.5)

pred_grnn <- function(x, nn){
  xlst <- split(x, 1:nrow(x))
  pred <- foreach(i = xlst, .combine = rbind) %dopar% {
    data.frame(pred = guess(nn, as.matrix(i)), row.names = NULL)
  }
}

print(pred_grnn(norm2[1:10, -1], nn2))
#         pred
# 1  0.6794262
# 2  0.5336774
# 3  0.7632387
# 4  0.8103197
# 5  0.6496806
# 6  0.7752137
# 7  0.4138325
# 8  0.7320472
# 9  0.6599813
# 10 0.8015706

As clearly shown in outputs, for the 2-level classification problem, both PNN and GRNN generated identical predicted values.

Prototyping A General Regression Neural Network with SAS

Last time when I read the paper “A General Regression Neural Network” by Donald Specht, it was exactly 10 years ago when I was in the graduate school. After reading again this week, I decided to code it out with SAS macros and make this excellent idea available for the SAS community.

The prototype of GRNN consists of 2 SAS macros, %grnn_learn() for the training of a GRNN and %grnn_pred() for the prediction with a GRNN. The famous Boston Housing dataset is used to test these two macros with the result compared with the outcome from the R implementation below. In this exercise, it is assumed that the smoothing parameter SIGMA is known and equal to 0.55 in order to simplify the case.

pkgs <- c('MASS', 'doParallel', 'foreach', 'grnn')
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 8)

data(Boston)
X <- Boston[-14]
st.X <- scale(X)
Y <- Boston[14]
boston <- data.frame(st.X, Y)

pred_grnn <- function(x, nn){
  xlst <- split(x, 1:nrow(x))
  pred <- foreach(i = xlst, .combine = rbind) %dopar% {
    data.frame(pred = guess(nn, as.matrix(i)), i, row.names = NULL)
  }
}

grnn <- smooth(learn(boston, variable.column = ncol(boston)), sigma = 0.55)
pred_grnn <- pred_grnn(boston[, -ncol(boston)], grnn)
head(pred_grnn$pred, n = 10)
# [1] 24.61559 23.22232 32.29610 32.57700 33.29552 26.73482 21.46017 20.96827
# [9] 16.55537 20.25247

The first SAS macro to train a GRNN is %grnn_learn() shown below. The purpose of this macro is store the whole specification of a GRNN in a SAS dataset after the simple 1-pass training with the development data. Please note that motivated by the idea of MongoDB, I use the key-value paired scheme to store the information of a GRNN.

libname data '';

data data.boston;
  infile 'housing.data';
  input x1 - x13 y;
run;

%macro grnn_learn(data = , x = , y = , sigma = , nn_out = );
options mprint mlogic nocenter;
********************************************************;
* THIS MACRO IS TO TRAIN A GENERAL REGRESSION NEURAL   *;
* NETWORK (SPECHT, 1991) AND STORE THE SPECIFICATION   *;
*------------------------------------------------------*;
* INPUT PARAMETERS:                                    *;
*  DATA  : INPUT SAS DATASET                           *;
*  X     : A LIST OF PREDICTORS IN THE NUMERIC FORMAT  *;
*  Y     : A RESPONSE VARIABLE IN THE NUMERIC FORMAT   *;
*  SIGMA : THE SMOOTH PARAMETER FOR GRNN               *;
*  NN_OUT: OUTPUT SAS DATASET CONTAINING THE GRNN      *;
*          SPECIFICATION                               *;
*------------------------------------------------------*;
* AUTHOR:                                              *;
*  WENSUI.LIU@53.COM                                   *;
********************************************************;

data _tmp1;
  set &data (keep = &x &y);
  where &y ~= .;
  array _x_ &x;
  _miss_ = 0;
  do _i_ = 1 to dim(_x_);
    if _x_[_i_] = . then _miss_ = 1; 
  end;
  if _miss_ = 0 then output;
run;

proc summary data = _tmp1;
  output out = _avg_ (drop = _type_ _freq_)
  mean(&x) = ;
run;

proc summary data = _tmp1;
  output out = _std_ (drop = _type_ _freq_)
  std(&x) = ;
run;

proc standard data = _tmp1 mean = 0 std = 1 out = _data_;
  var &x;
run;

data &nn_out (keep = _neuron_ _key_ _value_);
  set _last_ end = eof;
  _neuron_ + 1;
  length _key_ $32;
  array _a_ &y &x;
  do _i_ = 1 to dim(_a_);
    if _i_ = 1 then _key_ = '_Y_';
    else _key_ = upcase(vname(_a_[_i_]));
    _value_ = _a_[_i_];
    output;
  end; 
  if eof then do;
    _neuron_ = 0;
    _key_  = "_SIGMA_";
    _value_  = &sigma;
    output;
    set _avg_;
    array _b_ &x;
    do _i_ = 1 to dim(_b_);
      _neuron_ = -1;
      _key_ = upcase(vname(_b_[_i_]));
      _value_ = _b_[_i_];
      output;
    end;
    set _std_;
    array _c_ &x;
    do _i_ = 1 to dim(_c_);
      _neuron_ = -2;
      _key_ = upcase(vname(_c_[_i_]));
      _value_ = _c_[_i_];
      output;
    end;
  end;
run;

proc datasets library = work;
  delete _: / memtype = data;
run;
quit;

********************************************************;
*              END OF THE MACRO                        *;
********************************************************;
%mend grnn_learn;

%grnn_learn(data = data.boston, x = x1 - x13, y = y, sigma = 0.55, nn_out = data.grnn);

proc print data = data.grnn (obs = 10) noobs;
run;
/* SAS PRINTOUT OF GRNN DATA:
_neuron_    _key_     _value_
    1        _Y_      24.0000
    1        X1       -0.4194
    1        X2        0.2845
    1        X3       -1.2866
    1        X4       -0.2723
    1        X5       -0.1441
    1        X6        0.4133
    1        X7       -0.1199
    1        X8        0.1401
    1        X9       -0.9819
*/

After the training of a GRNN, the macro %grnn_pred() would be used to generate predicted values from a test dataset with all predictors. As shown in the print-out, first 10 predicted values are identical to those generated with R.

libname data '';

%macro grnn_pred(data = , x = , id = NA, nn_in = , out = grnn_pred);
options mprint mlogic nocenter;
********************************************************;
* THIS MACRO IS TO GENERATE PREDICTED VALUES BASED ON  *;
* THE SPECIFICATION OF GRNN CREATED BY THE %GRNN_LEARN *;
* MACRO                                                *;
*------------------------------------------------------*;
* INPUT PARAMETERS:                                    *;
*  DATA : INPUT SAS DATASET                            *;
*  X    : A LIST OF PREDICTORS IN THE NUMERIC FORMAT   *;
*  ID   : AN ID VARIABLE (OPTIONAL)                    *;
*  NN_IN: INPUT SAS DATASET CONTAINING THE GRNN        *;
*         SPECIFICATION GENERATED FROM %GRNN_LEARN     *;
*  OUT  : OUTPUT SAS DATASET WITH GRNN PREDICTIONS     *;
*------------------------------------------------------*;
* AUTHOR:                                              *;
*  WENSUI.LIU@53.COM                                   *;
********************************************************;

data _data_;
  set &data;
  array _x_ &x;
  _miss_ = 0;
  do _i_ = 1 to dim(_x_);
    if _x_[_i_] = . then _miss_ = 1;
  end;
  if _miss_ = 0 then output;
run;

data _data_;
  set _last_ (drop = _miss_);
  %if &id = NA %then %do;
  _id_ + 1;
  %end;
  %else %do;
  _id_ = &id;
  %end;
run;

proc sort data = _last_ sortsize = max nodupkey;
  by _id_;
run;

data _data_ (keep = _id_ _key_ _value_);
  set _last_;
  array _x_ &x;
  length _key_ $32;
  do _i_ = 1 to dim(_x_);
    _key_ = upcase(vname(_x_[_i_]));
    _value_ = _x_[_i_];
    output;
  end;
run;

proc sql noprint;
select _value_ ** 2 into :s2 from &nn_in where _neuron_ = 0;

create table
  _last_ as 
select
  a._id_,
  a._key_,
  (a._value_ - b._value_) / c._value_ as _value_
from
  _last_ as a,
  &nn_in as b,
  &nn_in as c
where
  compress(a._key_, ' ') = compress(b._key_, ' ') and
  compress(a._key_, ' ') = compress(c._key_, ' ') and
  b._neuron_ = -1                                 and
  c._neuron_ = -2;

create table
  _last_ as
select
  a._id_,
  b._neuron_,
  sum((a._value_ - b._value_) ** 2) as d2,
  mean(c._value_)                   as y,
  exp(-(calculated d2) / (2 * &s2)) as exp
from
  _last_  as a,
  &nn_in as b,
  &nn_in as c
where
  compress(a._key_, ' ') = compress(b._key_, ' ') and
  b._neuron_ = c._neuron_                         and
  b._neuron_ > 0                                  and
  c._key_ = '_Y_'
group by
  a._id_, b._neuron_;

create table
  _last_ as
select
  a._id_,
  sum(a.y * a.exp / b.sum_exp) as _pred_
from
  _last_ as a inner join (select _id_, sum(exp) as sum_exp from _last_ group by _id_) as b
on
  a._id_ = b._id_
group by
  a._id_;
quit;

proc sort data = _last_ out = &out sortsize = max;
  by _id_;
run;

********************************************************;
*              END OF THE MACRO                        *;
********************************************************;
%mend grnn_pred;

%grnn_pred(data = data.boston, x = x1 - x13, nn_in = data.grnn);

proc print data = grnn_pred (obs = 10) noobs;
run;
/* SAS PRINTOUT:
_id_     _pred_
  1     24.6156
  2     23.2223
  3     32.2961
  4     32.5770
  5     33.2955
  6     26.7348
  7     21.4602
  8     20.9683
  9     16.5554
 10     20.2525
*/

After the development of these two macros, I also compare predictive performances between GRNN and OLS regression. It turns out that GRNN consistently outperforms OLS regression even with a wide range of SIGMA values. With a reasonable choice of SIGMA value, even a GRNN developed with 10% of the whole Boston Housing dataset is able to generalize well and yield a R^2 > 0.8 based upon the rest 90% data.

General Regression Neural Network with R

Similar to the back propagation neural network, the general regression neural network (GRNN) is also a good tool for the function approximation in the modeling toolbox. Proposed by Specht in 1991, GRNN has advantages of instant training and easy tuning. A GRNN would be formed instantly with just a 1-pass training with the development data. In the network development phase, the only hurdle is to tune the hyper-parameter, which is known as sigma, governing the smoothness of a GRNN.

The grnn package (http://flow.chasset.net/r-grnn/) is the implementation of GRNN in R and was just published on CRAN last month. Although the grnn package is still in the early phase, e.g. version 0.1, it is very easy to use and has a great potential for future improvements. For instance, the guess() function to predict new cases is only able to take 1 record at a time. Therefore, the user needs to write his / her own function to generate predicted values from a data frame. In addition, there is no automatic scheme to find the optimal value of the smooth parameter sigma. The user has to come up with his / her own solution.

Below is my test drive of grnn package over the weekend. By leveraging the power of foreach package, I wrote a simple function to let the guess() function able to score a whole matrix instead of a single row. Additionally, I used a hold-out sample to search for the optimal value of sigma, which turns out to work out pretty well and identifies the lowest SSE for the hold-out sample with sigma = 0.55.

pkgs <- c('MASS', 'doParallel', 'foreach', 'grnn')
lapply(pkgs, require, character.only = T)
registerDoParallel(cores = 8)

data(Boston)
# PRE-PROCESSING DATA 
X <- Boston[-14]
st.X <- scale(X)
Y <- Boston[14]
boston <- data.frame(st.X, Y)

# SPLIT DATA SAMPLES
set.seed(2013)
rows <- sample(1:nrow(boston), nrow(boston) - 200)
set1 <- boston[rows, ]
set2 <- boston[-rows, ]

# DEFINE A FUNCTION TO SCORE GRNN
pred_grnn <- function(x, nn){
  xlst <- split(x, 1:nrow(x))
  pred <- foreach(i = xlst, .combine = rbind) %dopar% {
    data.frame(pred = guess(nn, as.matrix(i)), i, row.names = NULL)
  }
}

# SEARCH FOR THE OPTIMAL VALUE OF SIGMA BY THE VALIDATION SAMPLE
cv <- foreach(s = seq(0.2, 1, 0.05), .combine = rbind) %dopar% {
  grnn <- smooth(learn(set1, variable.column = ncol(set1)), sigma = s)
  pred <- pred_grnn(set2[, -ncol(set2)], grnn)
  test.sse <- sum((set2[, ncol(set2)] - pred$pred)^2)
  data.frame(s, sse = test.sse)
}

cat("\n### SSE FROM VALIDATIONS ###\n")
print(cv)
jpeg('grnn_cv.jpeg', width = 800, height = 400, quality = 100)
with(cv, plot(s, sse, type = 'b'))

cat("\n### BEST SIGMA WITH THE LOWEST SSE ###\n")
print(best.s <- cv[cv$sse == min(cv$sse), 1])

# SCORE THE WHOLE DATASET WITH GRNN
final_grnn <- smooth(learn(set1, variable.column = ncol(set1)), sigma = best.s)
pred_all <- pred_grnn(boston[, -ncol(set2)], final_grnn)
jpeg('grnn_fit.jpeg', width = 800, height = 400, quality = 100)
plot(pred_all$pred, boston$medv) 
dev.off()

Improve The Efficiency in Joining Data with Index

When managing big data with R, many people like to use sqldf() package due to its friendly interface or choose data.table() package for its lightening speed. However, very few would pay special attentions to small details that might significantly boost the efficiency of these packages by adding index to the data.frame or data.table.

In my post on 01/29/2013 (https://statcompute.wordpress.com/2013/01/29/another-benchmark-for-joining-two-data-frames), I’ve shown how to effectively join two data.frames / data.tables. However, the example is not intuitive for people to fully understand the benefit of adding index. In the demonstration below, I will compare 2 scenarios, one with the index and the other without, to show the extra efficiency gained by a simple index.

It is also important to note that creating the index in “ldf” would have the effect of adding the data.frame “ldf” from the R workspace to SQLite database. Therefore, in the 2nd “select…” statement, we need to add “main.” in front of “ldf” in order to use the indexed table “ldf” in SQLite instead of the unindexed table “ldf” in the R environment.

As shown in the benchmark table, simply adding an index can significantly reduce the user time with sqldf package and improves somewhat with data.table package.

libs <- c('sqldf', 'data.table', 'rbenchmark')
lapply(libs, require, character.only = T)

n <- 1000000
set.seed(1)
ldf <- data.frame(id1 = sample(n, n), id2 = sample(n / 1000, n, replace = TRUE), x1 = rnorm(n), x2 = runif(n))
rdf <- data.frame(id1 = sample(n, n), id2 = sample(n / 1000, n, replace = TRUE), y1 = rnorm(n), y2 = runif(n))

benchmark(replications = 5, order = "user.self", 
  noindex.sqldf = (sqldf('select * from ldf as l inner join rdf as r on l.id1 = r.id1 and l.id2 = r.id2')),
  indexed.sqldf = (sqldf(c('create index ldx on ldf(id1, id2)', 
                           'select * from main.ldf as l inner join rdf as r on l.id1 = r.id1 and l.id2 = r.id2')))
)

benchmark(replications = 5, order = "user.self", 
  noindex.table = {
    ldt <- data.table(ldf)
    rdt <- data.table(rdf)
    merge(ldt, rdt, by = c('id1', 'id2'))
  },
  indexed.table = {
    ldt <- data.table(ldf, key = 'id1,id2')
    rdt <- data.table(rdf, key = 'id1,id2')
    merge(ldt, rdt, by = c('id1', 'id2'))
  }
)

SQLDF OUTCOMES

           test replications elapsed relative user.self sys.self user.child
2 indexed.sqldf            5  34.774    1.000    34.511    0.244          0
1 noindex.sqldf            5  61.873    1.779    44.918   16.941          0

DATA.TABLE OUTCOMES

           test replications elapsed relative user.self sys.self user.child
2 indexed.table            5   6.719    1.000     6.609    0.104          0
1 noindex.table            5   6.777    1.009     6.696    0.076          0

Estimating Finite Mixture Models with Flexmix Package

In my post on 06/05/2013 (https://statcompute.wordpress.com/2013/06/05/estimating-composite-models-for-count-outcomes-with-fmm-procedure), I’ve shown how to estimate finite mixture models, e.g. zero-inflated Poisson and 2-class finite mixture Poisson models, with FMM and NLMIXED procedure in SAS. Today, I am going to demonstrate how to achieve the same results with flexmix package in R.

R Code

library(flexmix)

data <- read.table('../data/credit_count.txt', header = TRUE, sep = ',')

set.seed(2013)
class <- FLXPmultinom(~ AGE + ACADMOS + MINORDRG + LOGSPEND)
formula <- "MAJORDRG ~ AGE + ACADMOS + MINORDRG + LOGSPEND"
control <- list(verbose = 10, iter.max = 500, minprior = 0.1, tol = 0.01)

cat("\n### TWO-CLASS FINITE MIXTURE POSSION MODEL ###\n")
mdl1 <- FLXMRglm(family = "poisson")
fit1 <- flexmix(as.formula(formula), data = data[data$CARDHLDR == 1, ], k = 2, model = mdl1, concomitant = class, control = control)
refit1 <- refit(fit1, method = 'optim')
cat("\n=== MODEL THE RESPONSE ===\n")
summary(refit1, which = 'model')
cat("\n=== MODEL THE MIXTURE DISTRIBUTION ===\n")
summary(refit1, which = 'concomitant') 

cat("\n### ZERO-INFLATED POSSION MODEL ###\n")
mdl2 <- FLXMRziglm(family = "poisson")
fit <- flexmix(as.formula(formula), data = data[data$CARDHLDR == 1, ], k = 2 , model = mdl2, concomitant = class, control = control)
refit2 <- refit(fit, method = 'optim')
cat("\n=== MODEL THE RESPONSE ===\n")
summary(refit2, which = 'model')
cat("\n=== MODEL THE MIXTURE DISTRIBUTION ===\n")
summary(refit2, which = 'concomitant')

R Output for 2-Class Finite Mixture Poisson

### TWO-CLASS FINITE MIXTURE POSSION MODEL ###
Classification: weighted 
   2 Log-likelihood :   -4303.5967 
converged

=== MODEL THE RESPONSE ===
$Comp.1
              Estimate Std. Error z value  Pr(>|z|)    
(Intercept) -8.0940843  1.6102947 -5.0265 4.996e-07 ***
AGE          0.0114988  0.0129009  0.8913  0.372759    
ACADMOS      0.0045677  0.0020299  2.2502  0.024438 *  
MINORDRG     0.2641256  0.6769000  0.3902  0.696390    
LOGSPEND     0.6826690  0.2224763  3.0685  0.002151 ** 
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

$Comp.2
               Estimate  Std. Error z value  Pr(>|z|)    
(Intercept) -2.44490331  0.34951344 -6.9952 2.650e-12 ***
AGE          0.02214164  0.00662479  3.3422 0.0008311 ***
ACADMOS      0.00052922  0.00077757  0.6806 0.4961209    
MINORDRG     0.05054178  0.04048630  1.2484 0.2118965    
LOGSPEND     0.21398000  0.04127917  5.1837 2.175e-07 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1


=== MODEL THE MIXTURE DISTRIBUTION ===
$Comp.2
              Estimate Std. Error z value  Pr(>|z|)    
(Intercept) -1.4274523  0.5275366 -2.7059  0.006812 ** 
AGE         -0.0027648  0.0100981 -0.2738  0.784246    
ACADMOS      0.0016143  0.0014455  1.1168  0.264096    
MINORDRG     1.5865202  0.1791074  8.8579 < 2.2e-16 ***
LOGSPEND    -0.0695020  0.0745171 -0.9327  0.350976    
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

R Output for Zero-Inflated Poisson

### ZERO-INFLATED POSSION MODEL ###
Classification: weighted 
   3 Log-likelihood :   -4175.7431 
converged

=== MODEL THE RESPONSE ===
$Comp.2
               Estimate  Std. Error z value  Pr(>|z|)    
(Intercept) -2.27782892  0.30030188 -7.5851 3.322e-14 ***
AGE          0.01955236  0.00602142  3.2471  0.001166 ** 
ACADMOS      0.00024907  0.00067394  0.3696  0.711698    
MINORDRG     0.11764062  0.02711666  4.3383 1.436e-05 ***
LOGSPEND     0.16441222  0.03531969  4.6550 3.240e-06 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1


=== MODEL THE MIXTURE DISTRIBUTION ===
$Comp.2
               Estimate  Std. Error z value  Pr(>|z|)    
(Intercept) -1.91132158  0.41706481 -4.5828 4.588e-06 ***
AGE         -0.00081716  0.00841240 -0.0971  0.922617    
ACADMOS      0.00293407  0.00109997  2.6674  0.007644 ** 
MINORDRG     1.44243620  0.13613625 10.5955 < 2.2e-16 ***
LOGSPEND     0.09561048  0.05080464  1.8819  0.059846 .  
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

R and MongoDB

MongoDB is a document-based noSQL database. Different from the relational database storing data in tables with rigid schemas, MongoDB stores data in documents with dynamic schemas. In the demonstration below, I am going to show how to extract data from a MongoDB with R.

Before starting the R session, we need to install the MongoDB in the local machine and then load the data into the database with the Python code below.

import pandas as pandas
import pymongo as pymongo

df = pandas.read_table('../data/csdata.txt')
lst = [dict([(colname, row[i]) for i, colname in enumerate(df.columns)]) for row in df.values]
for i in range(3):
  print lst[i]

con = pymongo.Connection('localhost', port = 27017)
test = con.db.test
test.drop()
for i in lst:
  test.save(i)

To the best of my knowledge, there are two R packages providing the interface with MongoDB, namely RMongo and rmongodb. While RMongo package is very straight-forward and user-friendly, it did take me a while to figure out how to specify a query with rmongodb package.

RMongo Example

library(RMongo)
mg1 <- mongoDbConnect('db')
print(dbShowCollections(mg1))
query <- dbGetQuery(mg1, 'test', "{'AGE': {'$lt': 10}, 'LIQ': {'$gte': 0.1}, 'IND5A': {'$ne': 1}}")
data1 <- query[c('AGE', 'LIQ', 'IND5A')]
summary(data1)

RMongo Output

Loading required package: rJava
Loading required package: methods
Loading required package: RUnit
[1] "system.indexes" "test"          
      AGE             LIQ             IND5A  
 Min.   :6.000   Min.   :0.1000   Min.   :0  
 1st Qu.:7.000   1st Qu.:0.1831   1st Qu.:0  
 Median :8.000   Median :0.2970   Median :0  
 Mean   :7.963   Mean   :0.3745   Mean   :0  
 3rd Qu.:9.000   3rd Qu.:0.4900   3rd Qu.:0  
 Max.   :9.000   Max.   :1.0000   Max.   :0

rmongodb Example

library(rmongodb)
mg2 <- mongo.create()
print(mongo.get.databases(mg2))
print(mongo.get.database.collections(mg2, 'db'))
buf <- mongo.bson.buffer.create()
mongo.bson.buffer.start.object(buf, 'AGE')
mongo.bson.buffer.append(buf, '$lt', 10)
mongo.bson.buffer.finish.object(buf)
mongo.bson.buffer.start.object(buf, 'LIQ')
mongo.bson.buffer.append(buf, '$gte', 0.1)
mongo.bson.buffer.finish.object(buf)
mongo.bson.buffer.start.object(buf, 'IND5A')
mongo.bson.buffer.append(buf, '$ne', 1)
mongo.bson.buffer.finish.object(buf)
query <- mongo.bson.from.buffer(buf)
cur <- mongo.find(mg2, 'db.test', query = query)
age <- liq <- ind5a <- NULL
while (mongo.cursor.next(cur)) {
  value <- mongo.cursor.value(cur)
  age   <- rbind(age, mongo.bson.value(value, 'AGE'))
  liq   <- rbind(liq, mongo.bson.value(value, 'LIQ'))
  ind5a <- rbind(ind5a, mongo.bson.value(value, 'IND5A'))
  }
mongo.destroy(mg2)
data2 <- data.frame(AGE = age, LIQ = liq, IND5A = ind5a)
summary(data2)

rmongo Output

rmongodb package (mongo-r-driver) loaded
Use 'help("mongo")' to get started.

[1] "db"
[1] "db.test"
[1] TRUE
[1] TRUE
[1] TRUE
[1] TRUE
[1] TRUE
[1] TRUE
[1] TRUE
[1] TRUE
[1] TRUE
NULL
      AGE             LIQ             IND5A  
 Min.   :6.000   Min.   :0.1000   Min.   :0  
 1st Qu.:7.000   1st Qu.:0.1831   1st Qu.:0  
 Median :8.000   Median :0.2970   Median :0  
 Mean   :7.963   Mean   :0.3745   Mean   :0  
 3rd Qu.:9.000   3rd Qu.:0.4900   3rd Qu.:0  
 Max.   :9.000   Max.   :1.0000   Max.   :0

Grid Search for Free Parameters with Parallel Computing

In my previous post (https://statcompute.wordpress.com/2013/05/25/test-drive-of-parallel-computing-with-r) on 05/25/2013, I’ve demonstrated the power of parallel computing with various R packages. However, in the real world, it is not straight-forward to utilize these powerful tools in our day-by-day computing tasks without carefully formulate the problem. In the example below, I am going to show how to use the FOREACH package doing a grid search for an optimal set of free parameters in a projection pursuit regression (PPR).

PPR is a powerful non-parametric regression model and is able to approximate any arbitrary function with a sufficiently complex setting, which consists of the smoothness tuning parameter and the number of smoothers used in the case shown below. In practice, a grid search strategy by the cross-sample validation is often employed to identify the optimal combination of these two free parameters. However, the challenge is the high computing cost occurred with the grid search. In the example below, if we’d like to try 6 values of the smoothness parameter and 10 smoothers respectively, then totally 60 combinations need to be tested in PPR. If the serial training with FOR() loops is applied to these 60 PPR, the computing time would be tediously lengthy. In this case, since the training of each 60 PPR is independent of each other, the parallel training with FOREACH() might best suit this scenario.

library(MASS)
data(Boston)
X <- I(as.matrix(Boston[-14]))
st.X <- scale(X)
Y <- I(as.matrix(Boston[14]))
boston <- data.frame(X = st.X, Y)

# DIVIDE THE WHOLE DATA INTO TWO SEPARATE SETS
set.seed(2013)
rows <- sample(1:nrow(boston), nrow(boston) - 200)
set1 <- boston[rows, ]
set2 <- boston[-rows, ]

# LOAD FOREACH PACKAGE
library(doParallel)
registerDoParallel(cores = 8)
library(foreach)

# GRID SEARCH BASED ON THE MINIMUM SSE WITH PARALLEL COMPUTING
cv.sse <- foreach(b = seq(0, 10, 2), .combine = rbind) %dopar% {
             foreach(n = 1:10, .combine = rbind) %dopar% {
               # TRAIN A PROJECTION PURSUIT REGRESSION WITH VARIOUS SETTINGS AND TRAINING DATA
               ppreg <- ppr(Y ~ X, data = set1, nterms = n, sm.method = "supsmu", bass = b)
               # CALCULATE SSE WITH VALIDATION DATA
               test.sse <- sum((set2$Y - predict(ppreg, set2))^2)
               data.frame(bass = b, nterms = n, sse = test.sse)
  }
}
# PRINT OUT THE BEST SETTING BASED ON THE GRID SEARCH
print(best.setting <- cv.sse[cv.sse$sse == min(cv.sse$sse), ]) 

# OUTPUT WITH THE LOWEST SSE BY GRID SEARCH #
#    bass nterms     sse
# 17    2      7 2126.07

# GENERATE A HEAT MAP TO VISUALIZE THE GRID SEARCH OUTCOME 
library(ggplot2)
bass <- factor(cv.sse$bass)
nterms <- factor(cv.sse$nterms)
sse <- factor(floor(cv.sse$sse / 100) * 100)
jpeg('cv.jpeg', width = 800, height = 500, quality = 100)
qplot(x = bass, y = nterms, fill = sse, geom = 'tile')
dev.off()

From the output, it appears that SSE (Sum of Squared Errors) reaches the lowest, e.g. 2,126, with the smoothness parameter equal to 2 and the number of smoothers equal to 7. In addition, a heat map might be also used to visualize outcomes of the grid search in a more intuitive way.

Rmagic, A Handy Interface Bridging Python and R

Rmagic (http://ipython.org/ipython-doc/dev/config/extensions/rmagic.html) is the ipython extension that utilizes rpy2 in the back-end and provides a convenient interface accessing R from ipython. Compared with the generic use of rpy2, the rmagic extension allows users to exchange objects between ipython and R in a more flexible way and to run a single R function or a block of R code conveniently.

Below is an example demonstrating a simple use case how to push a pandas DataFrame object into R, convert it to a R data.frame, and then transfer back to a new pandas DataFrame object again.

In [1]: import pandas as pd

In [2]: # READ DATA INTO PANDAS DATAFRAME

In [3]: pydf1 = pd.read_table('../data/csdata.txt', header = 0)

In [4]: print pydf1.describe()
           LEV_LT3     TAX_NDEB      COLLAT1        SIZE1        PROF2  \
count  4421.000000  4421.000000  4421.000000  4421.000000  4421.000000   
mean      0.090832     0.824537     0.317354    13.510870     0.144593   
std       0.193872     2.884129     0.227150     1.692520     0.110908   
min       0.000000     0.000000     0.000000     7.738052     0.000016   
25%       0.000000     0.349381     0.124094    12.316970     0.072123   
50%       0.000000     0.566577     0.287613    13.539574     0.120344   
75%       0.011689     0.789128     0.472355    14.751119     0.187515   
max       0.998372   102.149483     0.995346    18.586632     1.590201   

           GROWTH2          AGE          LIQ        IND2A        IND3A  \
count  4421.000000  4421.000000  4421.000000  4421.000000  4421.000000   
mean     13.619633    20.366433     0.202813     0.611626     0.190228   
std      36.517739    14.538997     0.233256     0.487435     0.392526   
min     -81.247627     6.000000     0.000000     0.000000     0.000000   
25%      -3.563235    11.000000     0.034834     0.000000     0.000000   
50%       6.164303    17.000000     0.108544     1.000000     0.000000   
75%      21.951632    25.000000     0.291366     1.000000     0.000000   
max     681.354187   210.000000     1.000182     1.000000     1.000000   

             IND4A        IND5A  
count  4421.000000  4421.000000  
mean      0.026917     0.099073  
std       0.161859     0.298793  
min       0.000000     0.000000  
25%       0.000000     0.000000  
50%       0.000000     0.000000  
75%       0.000000     0.000000  
max       1.000000     1.000000  

In [5]: # CONVERT PANDAS DATAFRAME TO R DATA.FRAME

In [6]: %load_ext rmagic

In [7]: col = pydf1.columns

In [8]: %R -i pydf1,col colnames(pydf1) <- unlist(col); print(is.matrix(pydf1))
[1] TRUE

In [9]: %R rdf <- data.frame(pydf1); print(is.data.frame(rdf))
[1] TRUE

In [10]: %R print(summary(rdf))
    LEV_LT3           TAX_NDEB           COLLAT1           SIZE1       
 Min.   :0.00000   Min.   :  0.0000   Min.   :0.0000   Min.   : 7.738  
 1st Qu.:0.00000   1st Qu.:  0.3494   1st Qu.:0.1241   1st Qu.:12.317  
 Median :0.00000   Median :  0.5666   Median :0.2876   Median :13.540  
 Mean   :0.09083   Mean   :  0.8245   Mean   :0.3174   Mean   :13.511  
 3rd Qu.:0.01169   3rd Qu.:  0.7891   3rd Qu.:0.4724   3rd Qu.:14.751  
 Max.   :0.99837   Max.   :102.1495   Max.   :0.9953   Max.   :18.587  
     PROF2              GROWTH2             AGE              LIQ         
 Min.   :0.0000158   Min.   :-81.248   Min.   :  6.00   Min.   :0.00000  
 1st Qu.:0.0721233   1st Qu.: -3.563   1st Qu.: 11.00   1st Qu.:0.03483  
 Median :0.1203435   Median :  6.164   Median : 17.00   Median :0.10854  
 Mean   :0.1445929   Mean   : 13.620   Mean   : 20.37   Mean   :0.20281  
 3rd Qu.:0.1875148   3rd Qu.: 21.952   3rd Qu.: 25.00   3rd Qu.:0.29137  
 Max.   :1.5902009   Max.   :681.354   Max.   :210.00   Max.   :1.00018  
     IND2A            IND3A            IND4A             IND5A        
 Min.   :0.0000   Min.   :0.0000   Min.   :0.00000   Min.   :0.00000  
 1st Qu.:0.0000   1st Qu.:0.0000   1st Qu.:0.00000   1st Qu.:0.00000  
 Median :1.0000   Median :0.0000   Median :0.00000   Median :0.00000  
 Mean   :0.6116   Mean   :0.1902   Mean   :0.02692   Mean   :0.09907  
 3rd Qu.:1.0000   3rd Qu.:0.0000   3rd Qu.:0.00000   3rd Qu.:0.00000  
 Max.   :1.0000   Max.   :1.0000   Max.   :1.00000   Max.   :1.00000  

In [11]: # CONVER R DATA.FRAME BACK TO PANDAS DATAFRAME

In [12]: %R -d rdf

In [13]: pydf2 = pd.DataFrame(rdf)

In [14]: print pydf2.describe()
           LEV_LT3     TAX_NDEB      COLLAT1        SIZE1        PROF2  \
count  4421.000000  4421.000000  4421.000000  4421.000000  4421.000000   
mean      0.090832     0.824537     0.317354    13.510870     0.144593   
std       0.193872     2.884129     0.227150     1.692520     0.110908   
min       0.000000     0.000000     0.000000     7.738052     0.000016   
25%       0.000000     0.349381     0.124094    12.316970     0.072123   
50%       0.000000     0.566577     0.287613    13.539574     0.120344   
75%       0.011689     0.789128     0.472355    14.751119     0.187515   
max       0.998372   102.149483     0.995346    18.586632     1.590201   

           GROWTH2          AGE          LIQ        IND2A        IND3A  \
count  4421.000000  4421.000000  4421.000000  4421.000000  4421.000000   
mean     13.619633    20.366433     0.202813     0.611626     0.190228   
std      36.517739    14.538997     0.233256     0.487435     0.392526   
min     -81.247627     6.000000     0.000000     0.000000     0.000000   
25%      -3.563235    11.000000     0.034834     0.000000     0.000000   
50%       6.164303    17.000000     0.108544     1.000000     0.000000   
75%      21.951632    25.000000     0.291366     1.000000     0.000000   
max     681.354187   210.000000     1.000182     1.000000     1.000000   

             IND4A        IND5A  
count  4421.000000  4421.000000  
mean      0.026917     0.099073  
std       0.161859     0.298793  
min       0.000000     0.000000  
25%       0.000000     0.000000  
50%       0.000000     0.000000  
75%       0.000000     0.000000  
max       1.000000     1.000000

Import All Text Files in A Folder with Parallel Execution

Sometimes, we might need to import all files, e.g. *.txt, with the same data layout in a folder without knowing each file name and then combine all pieces together. With the old method, we can use lapply() and do.call() functions to accomplish the task. However, when there are a large number of such files and each file size is large, it could be computational expensive.

With the foreach package, we are able to split the data import task into pieces and then distribute them to multiple CPUs with the parallel execution, as shown in the code below.

setwd('../data/csdata')
files <- list.files(pattern = "[.]txt$")

library(rbenchmark)
benchmark(replications = 10, order = "user.self",
  LAPPLY = {
    read.all <- lapply(files, read.table, header = TRUE)
    data1 <- do.call(rbind, read.all)
  },
  FOREACH = {
    library(doParallel)
    registerDoParallel(cores = 4)
    library(foreach)
    data2 <- foreach(i = files, .combine = rbind) %dopar% read.table(i, header = TRUE)
  }
)

library(compare)
all.equal(data1, data2)

From the output below, it is shown that both methods generated identical data.frames. However, the method with foreach() is much more efficient than the method with lapply() due to the parallelism.

     test replications elapsed relative user.self sys.self user.child sys.child
2 FOREACH           10   0.689    1.000     0.156    0.076      1.088     0.308
1  LAPPLY           10   1.078    1.565     1.076    0.004      0.000     0.000

Attaching package: ‘compare’

The following object is masked from ‘package:base’:

    isTRUE

[1] TRUE

Test Drive of Parallel Computing with R

Today, I did a test run of parallel computing with snow and multicore packages in R and compared the parallelism with the single-thread lapply() function.

In the test code below, a data.frame with 20M rows is simulated in a Ubuntu VM with 8-core CPU and 10-G memory. As the baseline, lapply() function is employed to calculate the aggregation by groups. For the comparison purpose, parLapply() function in snow package and mclapply() in multicore package are also used to generate the identical aggregated data.

n <- 20000000
set.seed(2013)
df <- data.frame(id = sample(20, n, replace = TRUE), x = rnorm(n), y = runif(n), z = rpois(n, 1))

library(rbenchmark)
benchmark(replications = 5, order = "user.self",
  LAPPLY = {
  cat('LAPPLY...\n')
  df1 <- data.frame(lapply(split(df[-1], df[1]), colMeans))
  },
  SNOW = {
  library(snow)
  cat('SNOW...\n')
  cl <- makeCluster(8, type = "SOCK")
  df2 <- data.frame(parLapply(cl, split(df[-1], df[1]), colMeans))
  stopCluster(cl)
  },
  MULTICORE = {
  cat('MULTICORE...\n')
  library(multicore)
  df3 <- data.frame(mclapply(split(df[-1], df[1]), colMeans, mc.cores = 8))
  }
)

library(compare)
all.equal(df1, df2)
all.equal(df1, df3)

Below is the benchmark output. As shown, the parallel solution, e.g. SNOW or MULTICORE, is 3 times more efficient than the baseline solution, e.g. LAPPLY, in terms of user time.

       test replications elapsed relative user.self sys.self user.child
3 MULTICORE            5 101.075    1.000    48.587    6.620    310.771
2      SNOW            5 127.715    1.264    53.192   13.685      0.012
1    LAPPLY            5 184.738    1.828   179.855    4.880      0.000
  sys.child
3     7.764
2     0.740
1     0.000

Attaching package: ‘compare’

The following object is masked from ‘package:base’:

    isTRUE

[1] TRUE
[1] TRUE

In order to illustrate the CPU usage, multiple screenshots have also been taken to show the difference between parallelism and single-thread.

In the first screenshot, it is shown that only 1 out of 8 CPUs is used at 100% with lapply() function and the rest 7 are idle.

In the second screenshot, it is shown that all 8 CPUs are used at 100% with parLapply() function in the snow package.

In the third screenshot, it is also shown that all 8 CPUs are used at 100% with mulapply() function in the multicore package.

Conversion between Factor and Dummies in R

data(iris)
str(iris)
# OUTPUT: 
# 'data.frame': 150 obs. of  5 variables:
#  $ Sepal.Length: num  5.1 4.9 4.7 4.6 5 5.4 4.6 5 4.4 4.9 ...
#  $ Sepal.Width : num  3.5 3 3.2 3.1 3.6 3.9 3.4 3.4 2.9 3.1 ...
#  $ Petal.Length: num  1.4 1.4 1.3 1.5 1.4 1.7 1.4 1.5 1.4 1.5 ...
#  $ Petal.Width : num  0.2 0.2 0.2 0.2 0.2 0.4 0.3 0.2 0.2 0.1 ...
#  $ Species     : Factor w/ 3 levels "setosa","versicolor",..: 1 1 1 1 1 1 1 1 1 1 ...

### CONVERT THE FACTOR TO DUMMIES ### 
library(caret)
dummies <- predict(dummyVars(~ Species, data = iris), newdata = iris)
head(dummies, n = 3)
# OUTPUT:
#   Species.setosa Species.versicolor Species.virginica
# 1              1                  0                 0
# 2              1                  0                 0
# 3              1                  0                 0

### CONVERT DUMMIES TO THE FACTOR ###
header <- unlist(strsplit(colnames(dummies), '[.]'))[2 * (1:ncol(dummies))]
species <- factor(dummies %*% 1:ncol(dummies), labels = header)
str(species)
# OUTPUT:
#  Factor w/ 3 levels "setosa","versicolor",..: 1 1 1 1 1 1 1 1 1 1 ...

### COMPARE THE ORIGINAL AND THE CALCULATED FACTORS ###
library(compare)
all.equal(species, iris$Species)
# OUTPUT:
# [1] TRUE

A Prototype of Monotonic Binning Algorithm with R

I’ve been asked many time if I have a piece of R code implementing the monotonic binning algorithm, similar to the one that I developed with SAS (https://statcompute.wordpress.com/2012/06/10/a-sas-macro-implementing-monotonic-woe-transformation-in-scorecard-development) and with Python (https://statcompute.wordpress.com/2012/12/08/monotonic-binning-with-python). Today, I finally had time to draft a quick prototype with 20 lines of R code, which is however barely useable without the further polish. But it is still a little surprising to me how efficient it can be to use R in algorithm prototyping, much sleeker than SAS macro.

library(sas7bdat)
library(Hmisc)

bin <- function(x, y){
  n <- min(50, length(unique(x)))
  repeat {
    n   <- n - 1
    d1  <- data.frame(x, y, bin = cut2(x, g = n)) 
    d2  <- aggregate(d1[-3], d1[3], mean)
    cor <- cor(d2[-1], method = "spearman")
    if(abs(cor[1, 2]) == 1) break
  }
  d2[2] <- NULL
  colnames(d2) <- c('LEVEL', 'RATE')
  head <- paste(toupper(substitute(y)), " RATE by ", toupper(substitute(x)), sep = '')
  cat("+-", rep("-", nchar(head)), "-+\n", sep = '')
  cat("| ", head, ' |\n', sep = '')
  cat("+-", rep("-", nchar(head)), "-+\n", sep = '')
  print(d2)
  cat("\n")
}

data <- read.sas7bdat("C:\\Users\\liuwensui\\Downloads\\accepts.sas7bdat")
attach(data)

bin(bureau_score, bad)
bin(age_oldest_tr, bad)
bin(tot_income, bad)
bin(tot_tr, bad)

R output:

+--------------------------+
| BAD RATE by BUREAU_SCORE |
+--------------------------+
       LEVEL       RATE
1  [443,618) 0.44639376
2  [618,643) 0.38446602
3  [643,658) 0.31835938
4  [658,673) 0.23819302
5  [673,686) 0.19838057
6  [686,702) 0.17850288
7  [702,715) 0.14168378
8  [715,731) 0.09815951
9  [731,752) 0.07212476
10 [752,776) 0.05487805
11 [776,848] 0.02605210

+---------------------------+
| BAD RATE by AGE_OLDEST_TR |
+---------------------------+
       LEVEL       RATE
1  [  1, 34) 0.33333333
2  [ 34, 62) 0.30560928
3  [ 62, 87) 0.25145068
4  [ 87,113) 0.23346304
5  [113,130) 0.21616162
6  [130,149) 0.20036101
7  [149,168) 0.19361702
8  [168,198) 0.15530303
9  [198,245) 0.11111111
10 [245,308) 0.10700389
11 [308,588] 0.08730159

+------------------------+
| BAD RATE by TOT_INCOME |
+------------------------+
           LEVEL      RATE
1 [   0,   2570) 0.2498715
2 [2570,   4510) 0.2034068
3 [4510,8147167] 0.1602327

+--------------------+
| BAD RATE by TOT_TR |
+--------------------+
    LEVEL      RATE
1 [ 0,12) 0.2672370
2 [12,22) 0.1827676
3 [22,77] 0.1422764

Disaggregating Annual Losses into Each Quarter

In loss forecasting, it is often necessary to disaggregate annual losses into each quarter. The most simple method to convert low frequency to high frequency time series is interpolation, such as the one implemented in EXPAND procedure of SAS/ETS. In the example below, there is a series of annual loss projections from 2013 through 2016. An interpolation by the natural spline is used to convert the annual losses into quarterly ones.
SAS Code:

data annual;
  input loss year mmddyy8.;
  format year mmddyy8.;
datalines;
19270175 12/31/13
18043897 12/31/14
17111193 12/31/15
17011107 12/31/16
;
run;

proc expand data = annual out = quarterly from = year to = quarter;
  id year;
  convert loss / observed = total method = spline(natural);
run;

proc sql;
select 
  year(year) as year, 
  sum(case when qtr(year) = 1 then loss else 0 end) as qtr1,
  sum(case when qtr(year) = 2 then loss else 0 end) as qtr2,
  sum(case when qtr(year) = 3 then loss else 0 end) as qtr3,
  sum(case when qtr(year) = 4 then loss else 0 end) as qtr4,
  sum(loss) as total
from
  quarterly
group by
  calculated year;
quit;

Output:

    year      qtr1      qtr2      qtr3      qtr4     total

    2013   4868536   4844486   4818223   4738931  19270175
    2014   4560049   4535549   4510106   4438194  18043897
    2015   4279674   4276480   4287373   4267666  17111193
    2016   4215505   4220260   4279095   4296247  17011107

While the mathematical interpolation is easy to implement, it might be difficult to justify and interpret from the business standpoint. In reality, there might be an assumption that the loss trend would follow the movement of macro-economy. Therefore, it might be advantageous to disaggregate annual losses into quarterly ones with the inclusion of one or more economic indicators. This approach can be implemented in tempdisagg package of R language. Below is a demo with the same loss data used above. However, disaggregation of annual losses is accomplished based upon a macro-economic indicator.
R Code:

library(tempdisagg)

loss <- c(19270175, 18043897, 17111193, 17011107)
loss.a <- ts(loss, frequency = 1, start = 2013)

econ <- c(7.74, 7.67, 7.62, 7.48, 7.32, 7.11, 6.88, 6.63, 6.41, 6.26, 6.12, 6.01, 5.93, 5.83, 5.72, 5.59)
econ.q <- ts(econ, frequency = 4, start = 2013)

summary(mdl <- td(loss.a ~ econ.q))
print(predict(mdl))

Output:

Call:
td(formula = loss.a ~ econ.q)

Residuals:
Time Series:
Start = 2013
End = 2016
Frequency = 1
[1]  199753 -234384 -199257  233888

Coefficients:
            Estimate Std. Error t value Pr(>|t|)
(Intercept)  2416610     359064   6.730   0.0214 *
econ.q        308226      53724   5.737   0.0291 *
---
Signif. codes:  0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1

'chow-lin-maxlog' disaggregation with 'sum' conversion
4 low-freq. obs. converted to 16 high-freq. obs.
Adjusted R-squared: 0.9141      AR1-Parameter:     0 (truncated)
        Qtr1    Qtr2    Qtr3    Qtr4
2013 4852219 4830643 4815232 4772080
2014 4614230 4549503 4478611 4401554
2015 4342526 4296292 4253140 4219235
2016 4302864 4272041 4238136 4198067

In practice, if a simple and flexible solution is desired without the need of interpretation, then the mathematical interpolation might be a good choice. On the other hand, if there is a strong belief that the macro-economy might drive the loss trend, then the regression-based method implemented in tempdisagg package might be preferred. However, in our example, both methods generate extremely similar results.

A Grid Search for The Optimal Setting in Feed-Forward Neural Networks

The feed-forward neural network is a very powerful classification model in the machine learning content. Since the goodness-of-fit of a neural network is majorly dominated by the model complexity, it is very tempting for a modeler to over-parameterize the neural network by using too many hidden layers or/and hidden units.

As pointed out by Brian Ripley in his famous book “Modern Applied Statistics with S”, the complexity of a neural network can be regulated by a hyper-parameter called “weight decay” to penalize the weights of hidden units. Per Ripley, the use of weight decay can both help the optimization process and avoid the over-ﬁtting.

Up till now, it becomes clear that the balance between the network complexity and the size of weight decay should form the optimal setting for a neural network. The only question remained is how to identify such a combination. In the real world, practitioners usually would use v-folder or cross-sample validation. However, given the expensive computing cost of a neural network, the cross-sample validation seems more efficient then the v-folder. In addition, due to the presence of local minimum, the validation result from a set of averaged models instead of a single model is deemed more reliable.

The example below shows a grip search strategy for the optimal setting in a neural network by cross-sample validation. As suggested by Ripley, the weight decay is in the approximate range between 0.01 and 0.1 for the entropy fit. For the simplicity, just a few numbers of hidden units are tried. However, with the availability of computing power, a finer grip search for a good combination between weight decay and the number of hidden units would be highly recommended.

> # DATA PREPARATIONS
> df1 <- read.csv('credit_count.csv')
> df2 <- df1[df1$CARDHLDR == 1, 2:12]
> X <- I(as.matrix(df2[-1]))
> st.X <- scale(X)
> Y <- I(as.matrix(df2[1]))
> df3 <- data.frame(X = st.X, Y);
> 
> # DIVIDE DATA INTO TESTING AND TRAINING SETS
> set.seed(2013)
> rows <- sample(1:nrow(df3), nrow(df3) - 1000)
> set1 <- df3[rows, ]
> set2 <- df3[-rows, ]
> 
> result <- c(NULL, NULL, NULL, NULL, NULL)
> n_nets <- 10
> # SEARCH FOR OPTIMAL WEIGHT DECAY
> for (w in c(0.01, 0.05, 0.1))
+ {
+   # SEARCH FOR OPTIMAL NUMBER OF HIDDEN UNITS
+   for (n in c(1, 5, 10, 20))
+   {
+     # CREATE A VECTOR OF RANDOM SEEDS
+     rv <- round(runif(n_nets) * 100)
+     # FOR EACH SETTING, RUN NEURAL NET MULTIPLE TIMES
+     for (i in 1:n_nets)
+     {
+       # INITIATE THE RANDOM STATE FOR EACH NET
+       set.seed(rv[i]);
+       # TRAIN NEURAL NETS
+       net <- nnet::nnet(Y ~ X, size = n, data = set1, entropy = TRUE, maxit = 1000, decay = w, skip = TRUE, trace = FALSE)
+       # COLLECT PREDICTIONS TO DO MODEL AVERAGING
+       if (i == 1) prob <- predict(net, set2) else prob <- prob + predict(net, set2)
+     }
+     # CALCULATE AREA UNDER CURVE OF THE MODEL AVERAGING PREDICTION
+     roc <- verification::roc.area(set2$Y, prob / n_nets)[1]
+     # COLLECT RESULTS
+     result <- rbind(result, c(w, n, roc, round(mean(prob / n_nets), 4), round(mean(set2$Y), 4)))
+   }
+ } 
> result2 <- data.frame(wt_decay = unlist(result[, 1]), n_units = unlist(result[, 2]),auc = unlist(result[, 3]),
+                       pred_rate = unlist(result[, 4]), obsv_rate = unlist(result[, 5]))
> result2[order(result2$auc, decreasing = T), ]
   wt_decay n_units       auc pred_rate obsv_rate
1      0.01       1 0.6638209    0.0923     0.095
9      0.10       1 0.6625414    0.0923     0.095
5      0.05       1 0.6557022    0.0922     0.095
3      0.01      10 0.6530154    0.0938     0.095
8      0.05      20 0.6528293    0.0944     0.095
6      0.05       5 0.6516662    0.0917     0.095
2      0.01       5 0.6498284    0.0928     0.095
7      0.05      10 0.6456063    0.0934     0.095
4      0.01      20 0.6446176    0.0940     0.095
10     0.10       5 0.6434545    0.0927     0.095
12     0.10      20 0.6415935    0.0938     0.095
11     0.10      10 0.6348822    0.0928     0.095

Another Benchmark for Joining Two Data Frames

In my post yesterday comparing efficiency in joining two data frames, I overlooked the computing cost used to convert data.frames to data.tables / ff data objects. Today, I did the test again with the consideration of library loading and data conversion. After the replication of 10 times in rbenchmark package, the joining method with data.table is almost 10 times faster than the other in terms of user time. Although ff package is claimed to be able to handle large-size data, its efficiency seems questionable.

n <- 1000000
set.seed(2013)
ldf <- data.frame(id1 = sample(n, n), id2 = sample(n / 100, n, replace = TRUE), x1 = rnorm(n), x2 = runif(n))
rdf <- data.frame(id1 = sample(n, n), id2 = sample(n / 100, n, replace = TRUE), y1 = rnorm(n), y2 = runif(n))

library(rbenchmark)
benchmark(replications = 10, order = "user.self",
  # GENERIC MERGE() IN BASE PACKAGE
  merge = merge(ldf, rdf, by = c("id1", "id2")),
  # DATA.TABLE PACKAGE
  datatable = {
    ldt <- data.table::data.table(ldf, key = c("id1", "id2"))
    rdt <- data.table::data.table(rdf, key = c("id1", "id2"))
    merge(ldt, rdt, by = c("id1", "id2"))
  },
  # FF PACKAGE
  ff = {
    lff <- ff::as.ffdf(ldf)
    rff <- ff::as.ffdf(rdf)
    merge(lff, rff, by = c("id1", "id2"))
  },
  # SQLDF PACKAGE
  sqldf = sqldf::sqldf(c("create index ldx on ldf(id1, id2)",
                         "select * from main.ldf inner join rdf on ldf.id1 = rdf.id1 and ldf.id2 = rdf.id2"))
)

#        test replications elapsed relative user.self sys.self user.child
# 2 datatable           10  17.923    1.000    16.605    1.432          0
# 4     sqldf           10 105.002    5.859   102.294    3.345          0
# 1     merge           10 131.279    7.325   119.139   13.049          0
# 3        ff           10 187.150   10.442   154.670   33.758          0

Efficiency in Joining Two Data Frames

In R, there are multiple ways to merge 2 data frames. However, there could be a huge disparity in terms of efficiency. Therefore, it is worthwhile to test the performance among different methods and choose the correct approach in the real-world work.

For smaller data frames with 1,000 rows, all six methods shown below seem to work pretty well except that the approach with sql.select() is significantly slower than the rest. The generic merge() function in the base package is a very natural choice without much overhead of loading additional libraries and converting data frame. sqldf() is also attractive in that it might be the most user-friendly function with a very intuitive syntax.

> n <- 1000
> set.seed(2013)
> ldf <- data.frame(id1 = sample(n, n), id2 = sample(n / 100, n, replace = TRUE), x1 = rnorm(n), x2 = runif(n))
> rdf <- data.frame(id1 = sample(n, n), id2 = sample(n / 100, n, replace = TRUE), y1 = rnorm(n), y2 = runif(n))
> 
> # METHOD 1: MERGE
> system.time(join1 <- merge(ldf, rdf, by = c("id1", "id2")))
   user  system elapsed 
  0.032   0.012   0.064 
> 
> # METHOD 2: DATA.TABLE
> ldt <- data.table::data.table(ldf, key = c("id1", "id2"))
> rdt <- data.table::data.table(rdf, key = c("id1", "id2"))
> system.time(join2 <- merge(ldt, rdt, by = c("id1", "id2")))
   user  system elapsed 
  0.028   0.000   0.044 
> 
> # METHOD 3: FF
> lff <- ff::as.ffdf(ldf)
> rff <- ff::as.ffdf(rdf)
> system.time(join3 <- merge(lff, rff, by = c("id1", "id2")))
   user  system elapsed 
  0.044   0.004   0.096 
> 
> # METHOD 4: SQLDF
> system.time(join4 <- sqldf::sqldf(c("create index ldx on ldf(id1, id2)", 
+                                     "select * from main.ldf inner join rdf on ldf.id1 = rdf.id1 and ldf.id2 = rdf.id2")))
   user  system elapsed 
  0.168   0.008   0.332 
> 
> # METHOD 5: PLYR
> system.time(join5 <- plyr::join(ldf, rdf, by = c("id1", "id2"), type = "inner"))
   user  system elapsed 
  0.088   0.020   0.152 
> 
> # METHOD 6: SQL.SELECT
> source("http://sqlselect.googlecode.com/svn/trunk/sql.select.R")
> system.time(join6 <- sql.select("select * from ldf inner join rdf on (`ldf$id1 == rdf$id1 & ldf$id2 == rdf$id2`)"))
   user  system elapsed 
 53.775  19.725  73.813

However, when it comes to mid-size data frames with 1,000,000 rows, the story has changed. First of all, out of six methods shown above, the last two fails directly due to the insufficient memory size in my 32-bit ubuntu virtual machine. In this case, data.table package shows a significant advantage after converting 2 data.frames to data.tables. In additional, it is interesting that although ff and sqldf packages are slower than merge() function for the small-size data with 1,000 rows, both of them seem slightly faster for the data with 1,000,000 rows.

> n <- 1000 ^ 2
> set.seed(2013)
> ldf <- data.frame(id1 = sample(n, n), id2 = sample(n / 100, n, replace = TRUE), x1 = rnorm(n), x2 = runif(n))
> rdf <- data.frame(id1 = sample(n, n), id2 = sample(n / 100, n, replace = TRUE), y1 = rnorm(n), y2 = runif(n))
> 
> # METHOD 1: MERGE
> system.time(join1 <- merge(ldf, rdf, by = c("id1", "id2")))
   user  system elapsed 
 55.223  12.437  68.054 
> 
> # METHOD 2: DATA.TABLE
> ldt <- data.table::data.table(ldf, key = c("id1", "id2"))
> rdt <- data.table::data.table(rdf, key = c("id1", "id2"))
> system.time(join2 <- merge(ldt, rdt, by = c("id1", "id2")))
   user  system elapsed 
  0.484   0.008   0.492 
> 
> # METHOD 3: FF
> lff <- ff::as.ffdf(ldf)
> rff <- ff::as.ffdf(rdf)
> system.time(join3 <- merge(lff, rff, by = c("id1", "id2")))
   user  system elapsed 
 49.811  13.821  64.004 
> 
> # METHOD 4: SQLDF
> system.time(join4 <- sqldf::sqldf(c("create index ldx on ldf(id1, id2)", 
+                                     "select * from main.ldf inner join rdf on ldf.id1 = rdf.id1 and ldf.id2 = rdf.id2")))
   user  system elapsed 
 40.418   1.268  42.076

PART – A Rule-Learning Algorithm

> require('RWeka')
> require('pROC')
> 
> # SEPARATE DATA INTO TRAINING AND TESTING SETS
> df1 <- read.csv('credit_count.csv')
> df2 <- df1[df1$CARDHLDR == 1, 2:12]
> set.seed(2013)
> rows <- sample(1:nrow(df2), nrow(df2) - 1000)
> set1 <- df2[rows, ]
> set2 <- df2[-rows, ]
> 
> # BUILD A PART RULE MODEL
> mdl1 <- PART(factor(BAD) ~., data = set1)
> print(mdl1)
PART decision list
------------------

EXP_INC > 0.000774 AND
AGE > 21.833334 AND
INCOME > 2100 AND
MAJORDRG <= 0 AND
OWNRENT > 0 AND
MINORDRG <= 1: 0 (2564.0/103.0)

AGE > 21.25 AND
EXP_INC > 0.000774 AND
INCPER > 17010 AND
INCOME > 1774.583333 AND
MINORDRG <= 0: 0 (2278.0/129.0)

AGE > 20.75 AND
EXP_INC > 0.016071 AND
OWNRENT > 0 AND
SELFEMPL > 0 AND
EXP_INC <= 0.233759 AND
MINORDRG <= 1: 0 (56.0)

AGE > 20.75 AND
EXP_INC > 0.016071 AND
SELFEMPL <= 0 AND
OWNRENT > 0: 0 (1123.0/130.0)

OWNRENT <= 0 AND
AGE > 20.75 AND
ACADMOS <= 20 AND
ADEPCNT <= 2 AND
MINORDRG > 0 AND
ACADMOS <= 14: 0 (175.0/10.0)

OWNRENT <= 0 AND
AGE > 20.75 AND
ADEPCNT <= 0: 0 (1323.0/164.0)

INCOME > 1423 AND
OWNRENT <= 0 AND
MINORDRG <= 1 AND
ADEPCNT > 0 AND
SELFEMPL <= 0 AND
MINORDRG <= 0: 0 (943.0/124.0)

SELFEMPL > 0 AND
MAJORDRG <= 0 AND
ACADMOS > 85: 0 (24.0)

SELFEMPL > 0 AND
MAJORDRG <= 1 AND
MAJORDRG <= 0 AND
MINORDRG <= 0 AND
INCOME > 2708.333333: 0 (17.0)

SELFEMPL > 0 AND
MAJORDRG <= 1 AND
OWNRENT <= 0 AND
MINORDRG <= 0 AND
INCPER <= 8400: 0 (13.0)

SELFEMPL <= 0 AND
OWNRENT > 0 AND
ADEPCNT <= 0 AND
MINORDRG <= 0 AND
MAJORDRG <= 0: 0 (107.0/15.0)

OWNRENT <= 0 AND
MINORDRG > 0 AND
MINORDRG <= 1 AND
MAJORDRG <= 1 AND
MAJORDRG <= 0 AND
SELFEMPL <= 0: 0 (87.0/13.0)

OWNRENT <= 0 AND
SELFEMPL <= 0 AND
MAJORDRG <= 0 AND
MINORDRG <= 1: 0 (373.0/100.0)

MAJORDRG > 0 AND
MINORDRG > 0 AND
MAJORDRG <= 1 AND
MINORDRG <= 1: 0 (29.0)

SELFEMPL <= 0 AND
OWNRENT > 0 AND
MAJORDRG <= 0: 0 (199.0/57.0)

OWNRENT <= 0 AND
SELFEMPL <= 0: 0 (84.0/24.0)

MAJORDRG > 1: 0 (17.0/3.0)

ACADMOS <= 34 AND
MAJORDRG > 0: 0 (10.0)

MAJORDRG <= 0 AND
ADEPCNT <= 2 AND
OWNRENT <= 0: 0 (29.0/7.0)

OWNRENT > 0 AND
SELFEMPL > 0 AND
EXP_INC <= 0.218654 AND
MINORDRG <= 2 AND
MINORDRG <= 1: 0 (8.0/1.0)

OWNRENT > 0 AND
INCOME <= 2041.666667 AND
MAJORDRG > 0 AND
ADEPCNT > 0: 1 (5.0)

OWNRENT > 0 AND
AGE > 33.416668 AND
ACADMOS <= 174 AND
SELFEMPL > 0: 0 (10.0/1.0)

OWNRENT > 0 AND
SELFEMPL <= 0 AND
MINORDRG <= 1 AND
AGE > 33.5 AND
EXP_INC > 0.006737: 0 (6.0)

EXP_INC > 0.001179: 1 (16.0/1.0)

: 0 (3.0)

Number of Rules  : 	25

> pred1 <- data.frame(prob = predict(mdl1, newdata = set2, type = 'probability')[, 2]) 
> # ROC FOR TESTING SET
> print(roc1 <- roc(set2$BAD, pred1$prob))

Call:
roc.default(response = set2$BAD, predictor = pred1$prob)

Data: pred1$prob in 905 controls (set2$BAD 0) < 95 cases (set2$BAD 1).
Area under the curve: 0.6794
> 
> # BUILD A LOGISTIC REGRESSION
> mdl2 <- Logistic(factor(BAD) ~., data = set1)
> print(mdl2)
Logistic Regression with ridge parameter of 1.0E-8
Coefficients...
               Class
Variable           0
====================
AGE           0.0112
ACADMOS      -0.0005
ADEPCNT      -0.0747
MAJORDRG     -0.2312
MINORDRG     -0.1991
OWNRENT       0.2244
INCOME        0.0004
SELFEMPL     -0.1206
INCPER             0
EXP_INC       0.4472
Intercept     0.7965


Odds Ratios...
               Class
Variable           0
====================
AGE           1.0113
ACADMOS       0.9995
ADEPCNT        0.928
MAJORDRG      0.7936
MINORDRG      0.8195
OWNRENT       1.2516
INCOME        1.0004
SELFEMPL      0.8864
INCPER             1
EXP_INC       1.5639

> pred2 <- data.frame(prob = predict(mdl2, newdata = set2, type = 'probability')[, 2])  
> # ROC FOR TESTING SET
> print(roc2 <- roc(set2$BAD, pred2$prob))

Call:
roc.default(response = set2$BAD, predictor = pred2$prob)

Data: pred2$prob in 905 controls (set2$BAD 0) < 95 cases (set2$BAD 1).
Area under the curve: 0.6529
> 
> # COMPARE TWO ROCS
> roc.test(roc1, roc2)

	DeLong's test for two correlated ROC curves

data:  roc1 and roc2 
Z = 1.0344, p-value = 0.301
alternative hypothesis: true difference in AUC is not equal to 0 
sample estimates:
AUC of roc1 AUC of roc2 
  0.6793894   0.6528875

Efficiecy of Extracting Rows from A Data Frame in R

In the example below, 552 rows are extracted from a data frame with 10 million rows using six different methods. Results show a significant disparity between the least and the most efficient methods in terms of CPU time. Similar to the finding in my previous post, the method with data.table package is the most efficient solution with 0.64s CPU time. Albeit user-friendly, the method with sqldf() is the least efficient solution with 82.27s CPU time.

> # SIMULATE A DATA.FRAME WITH 10,000,000 ROWS
> set.seed(2013)
> df <- data.frame(x1 = rpois(10000000, 1), x2 = rpois(10000000, 1), x3 = rpois(10000000, 1))
> 
> # METHOD 1: EXTRACT ROWS WITH LOGICAL SUBSCRIPTS
> system.time(set1 <- df[df$x1 == 4 & df$x2 > 4 & df$x3 < 4,])
   user  system elapsed 
  1.484   1.932   3.640 
> dim(set1)
[1] 552   3
> 
> # METHOD 2: EXTRACT ROWS WITH ROW INDEX
> system.time(set2 <- df[which(df$x1 == 4 & df$x2 > 4 & df$x3 < 4),])
   user  system elapsed 
  0.856   1.200   2.197 
> dim(set2)
[1] 552   3
> 
> # METHOD 3: EXTRACT ROWS WITH SUBSET() 
> system.time(set3 <- subset(df, x1 == 4 & x2 > 4 & x3 < 4))
   user  system elapsed 
  1.680   2.644   4.690 
> dim(set3)
[1] 552   3
> 
> # METHOD 4: EXTRACT ROWS WITH SQLDF() 
> require(sqldf)
> system.time(set4 <- sqldf("select * from df where x1 = 4 and x2 > 4 and x3 < 4", row.names = TRUE))
   user  system elapsed 
 82.269  13.733  98.943 
> dim(set4)
[1] 552   3
> 
> # METHOD 5: EXTRACT ROWS WITH SQL.SELECT()
> source("http://sqlselect.googlecode.com/svn/trunk/sql.select.R")
> system.time(set5 <- sql.select("select * from df where `x1 == 4 & x2 > 4 & x3 < 4`"))
   user  system elapsed 
  2.800   3.152   7.107 
> dim(set5)
[1] 552   3
> 
> # METHOD 6: EXTRACT ROWS WITH DATA.TABLE PACKAGE 
> require(data.table)
> dt <- data.table(df)
> system.time(set6 <- dt[dt$x1 == 4 & dt$x2 > 4 & dt$x3 < 4,])
   user  system elapsed 
  0.636   0.000   0.655 
> dim(set6)
[1] 552   3

Modeling in R with Log Likelihood Function

Similar to NLMIXED procedure in SAS, optim() in R provides the functionality to estimate a model by specifying the log likelihood function explicitly. Below is a demo showing how to estimate a Poisson model by optim() and its comparison with glm() result.

> df <- read.csv('credit_count.csv')
> # ESTIMATE A POISSON MODEL WITH GLM()
> mdl <- glm(MAJORDRG ~ AGE + ACADMOS + ADEPCNT + MINORDRG, family = poisson, data = df)
> summary(mdl)

Call:
glm(formula = MAJORDRG ~ AGE + ACADMOS + ADEPCNT + MINORDRG, 
    family = poisson, data = df)

Deviance Residuals: 
    Min       1Q   Median       3Q      Max  
-9.9940  -0.8907  -0.8079  -0.7633  11.6866  

Coefficients:
              Estimate Std. Error z value Pr(>|z|)    
(Intercept) -1.3813012  0.0450281 -30.676  < 2e-16 ***
AGE          0.0056126  0.0013616   4.122 3.76e-05 ***
ACADMOS      0.0013437  0.0001975   6.803 1.03e-11 ***
ADEPCNT      0.0803056  0.0093378   8.600  < 2e-16 ***
MINORDRG     0.4499422  0.0068969  65.238  < 2e-16 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 

(Dispersion parameter for poisson family taken to be 1)

    Null deviance: 24954  on 13443  degrees of freedom
Residual deviance: 22026  on 13439  degrees of freedom
AIC: 28520

Number of Fisher Scoring iterations: 6

> # ESTIMATE A POISSON MODEL WITH OPTIM()
> log.like <- function(par) {
+   xb <- par[1] + par[2] * df$AGE + par[3] * df$ACADMOS + par[4] * df$ADEPCNT + par[5] * df$MINORDRG
+   mu <- exp(xb)
+   ll <- sum(log(exp(-mu) * (mu ^ df$MAJORDRG) / factorial(df$MAJORDRG)))
+   return(-ll)
+ }
> result <- optim(c(0, 0, 0, 0, 0), log.like, hessian = TRUE, method = "BFGS")
> stder <- sqrt(diag(solve(result$hessian)))
> estimate <- data.frame(beta = result$par, stder = stder, z_values = result$par / stder)
> print(estimate)
          beta        stder   z_values
1 -1.380911081 0.0450398804 -30.659741
2  0.005656423 0.0013611828   4.155520
3  0.001298029 0.0001956315   6.635072
4  0.080171673 0.0093427325   8.581180
5  0.450468859 0.0068922289  65.358952

Surprising Performance of data.table in Data Aggregation

data.table (http://datatable.r-forge.r-project.org/) inherits from data.frame and provides functionality in fast subset, fast grouping, and fast joins. In previous posts, it is shown that the shortest CPU time to aggregate a data.frame with 13,444 rows and 14 columns for 10 times is 0.236 seconds with summarize() in Hmisc package. However, after the conversion from data.frame to data.table, the CPU time of aggregation improves significantly, as shown in the example below.

> library(data.table)
data.table 1.8.6  For help type: help("data.table")
> class(df)
[1] "data.frame"
> dt <- data.table(df)
> class(dt)
[1] "data.table" "data.frame"
> system.time({
+   for (i in 1:10){
+     summ <- dt[, list(INCOME = mean(INCOME), BAD = mean(BAD)),by = list(SELFEMPL, OWNRENT)]
+   }
+ })
   user  system elapsed 
  0.060   0.000   0.062 
> print(summ)
   SELFEMPL OWNRENT   INCOME        BAD
1:        0       0 2133.314 0.08470957
2:        0       1 2881.201 0.06293210
3:        1       1 3487.910 0.05316973
4:        1       0 2742.247 0.06896552

More about Aggregation by Group in R

Motivated by my young friend, HongMing Song, I managed to find more handy ways to calculate aggregated statistics by group in R. They require loading additional packages, plyr, doBy, Hmisc, and gdata, and are extremely user-friendly. In terms of CPU time, while the method with summarize() is as efficient as the 2nd method with by() introduced yesterday, summaryBy() in doBy package seems the slowest.

“Learn as if you were to live forever” – Mahatma Gandhi

> # METHOD 5: USING DDPLY()
> library(plyr)
> summ5 <- ddply(df, .(SELFEMPL, OWNRENT), summarize, INCOME = mean(INCOME), BAD = mean(BAD))
> print(summ5)
  SELFEMPL OWNRENT   INCOME        BAD
1        0       0 2133.314 0.08470957
2        0       1 2881.201 0.06293210
3        1       0 2742.247 0.06896552
4        1       1 3487.910 0.05316973
> 
> # METHOD 6: USING DOBy()
> library(doBy)
> summ6 <- summaryBy(INCOME + BAD ~ SELFEMPL + OWNRENT, data = df, fun = c(mean), keep.names = TRUE)
> print(summ6)
  SELFEMPL OWNRENT   INCOME        BAD
1        0       0 2133.314 0.08470957
2        0       1 2881.201 0.06293210
3        1       0 2742.247 0.06896552
4        1       1 3487.910 0.05316973
>
> # METHOD 7: USING SUMMARIZE()
> library(Hmisc)
> summ7 <- summarize(df[c('INCOME', 'BAD', 'SELFEMPL', 'OWNRENT')], df[c('SELFEMPL', 'OWNRENT')], colMeans, stat.name = NULL)
> print(summ7)
  SELFEMPL OWNRENT   INCOME        BAD
1        0       0 2133.314 0.08470957
2        0       1 2881.201 0.06293210
3        1       0 2742.247 0.06896552
4        1       1 3487.910 0.05316973
> 
> # METHOD 8: USING FRAMEAPPLY()
> library(gdata)
> summ8 <- frameApply(df, by = c('SELFEMPL', 'OWNRENT'), on = c('INCOME', 'BAD'), fun = colMeans)
> rownames(summ8) <- NULL
> print(summ8)
  SELFEMPL OWNRENT   INCOME        BAD
1        0       0 2133.314 0.08470957
2        0       1 2881.201 0.06293210
3        1       0 2742.247 0.06896552
4        1       1 3487.910 0.05316973

Efficiency Comparison

> test5 <- function(n){
+   for (i in 1:n){
+     summ5 <- ddply(df, .(SELFEMPL, OWNRENT), summarize, INCOME = mean(INCOME), BAD = mean(BAD))
+   }
+ }
> system.time(test5(10))
   user  system elapsed 
  0.524   0.068   0.622 
>
> test6 <- function(n){
+   for (i in 1:n){
+     summ6 <- summaryBy(INCOME + BAD ~ SELFEMPL + OWNRENT, data = df, fun = c(mean), keep.names = TRUE)
+   }
+ }
> system.time(test6(10))
   user  system elapsed 
  1.800   0.060   1.903 
> 
> test7 <- function(n){
+   for (i in 1:n){
+     summ7 <- summarize(df[c('INCOME', 'BAD', 'SELFEMPL', 'OWNRENT')], df[c('SELFEMPL', 'OWNRENT')], colMeans, stat.name = NULL)
+   }
+ }
> system.time(test7(10))
   user  system elapsed 
  0.236   0.020   0.274 
> 
> test8 <- function(n){
+   for (i in 1:n){
+     summ8 <- frameApply(df, by = c('SELFEMPL', 'OWNRENT'), on = c('INCOME', 'BAD'), fun = colMeans)
+     rownames(summ8) <- NULL
+   }
+ }
> system.time(test8(10))
   user  system elapsed 
  0.580   0.008   0.668

Aggregation by Group in R

> df <- read.csv('credit_count.csv')
> 
> # METHOD 1: USING AGGREGAGE() 
> summ1 <- aggregate(df[c('INCOME', 'BAD')], df[c('SELFEMPL', 'OWNRENT')], mean)
> print(summ1)
  SELFEMPL OWNRENT   INCOME        BAD
1        0       0 2133.314 0.08470957
2        1       0 2742.247 0.06896552
3        0       1 2881.201 0.06293210
4        1       1 3487.910 0.05316973
> 
> # METHOD 2: USING BY() 
> temp2 <- by(df[c('INCOME', 'BAD')], df[c('SELFEMPL', 'OWNRENT')], colMeans)
> summ2 <- cbind(expand.grid(dimnames(temp2)), do.call(rbind, temp2))
> print(summ2)
  SELFEMPL OWNRENT   INCOME        BAD
1        0       0 2133.314 0.08470957
2        1       0 2742.247 0.06896552
3        0       1 2881.201 0.06293210
4        1       1 3487.910 0.05316973
> 
> # METHOD 3: USING SQLDF() 
> library(sqldf)
Loading required package: DBI
Loading required package: gsubfn
Loading required package: proto
Loading required namespace: tcltk
Loading Tcl/Tk interface ... done
Loading required package: chron
Loading required package: RSQLite
Loading required package: RSQLite.extfuns
> summ3 <- sqldf("select SELFEMPL, OWNRENT, avg(INCOME) as INCOME, avg(BAD) from df
+                 group by SELFEMPL, OWNRENT")
Loading required package: tcltk
> print(summ3)
  SELFEMPL OWNRENT   INCOME   avg(BAD)
1        0       0 2133.314 0.08470957
2        0       1 2881.201 0.06293210
3        1       0 2742.247 0.06896552
4        1       1 3487.910 0.05316973
> 
> # METHOD 4: USING SQL.SELECT()
> source("http://sqlselect.googlecode.com/svn/trunk/sql.select.R")
Creating a generic function for ‘as.data.frame’ from package ‘base’ in the global environment
> summ4 <- sql.select("select SELFEMPL, OWNRENT, `mean(INCOME)` as INCOME, `mean(BAD)` as BAD 
+                      from df group by SELFEMPL, OWNRENT")
> print(summ4)
  SELFEMPL OWNRENT   INCOME        BAD
1        0       0 2133.314 0.08470957
2        0       1 2881.201 0.06293210
3        1       1 3487.910 0.05316973
4        1       0 2742.247 0.06896552

Efficiency Comparison among 4 Methods above

> test1 <- function(n){
+   for (i in 1:n){
+     summ1 <- aggregate(df[c('INCOME', 'BAD')], df[c('SELFEMPL', 'OWNRENT')], mean)
+   }
+ }
> system.time(test1(10))
   user  system elapsed 
  0.404   0.036   0.513 
> 
> test2 <- function(n){
+   for (i in 1:n){
+     temp2 <- by(df[c('INCOME', 'BAD')], df[c('SELFEMPL', 'OWNRENT')], colMeans)
+     summ2 <- cbind(expand.grid(dimnames(temp2)), do.call(rbind, temp2))
+   }
+ }
> system.time(test2(10))
   user  system elapsed 
  0.244   0.020   0.309 
> 
> test3 <- function(n){
+   for (i in 1:n){
+     summ3 <- sqldf("select SELFEMPL, OWNRENT, avg(INCOME) as INCOME, avg(BAD) from df
+                     group by SELFEMPL, OWNRENT")
+   }
+ }
> system.time(test3(10))
   user  system elapsed 
  0.956   0.112   1.178 
> 
> test4 <- function(n){
+   for (i in 1:n){
+     summ4 <- sql.select("select SELFEMPL, OWNRENT, `mean(INCOME)` as INCOME, `mean(BAD)` as BAD 
+                          from df group by SELFEMPL, OWNRENT")
+   }
+ }
> system.time(test4(10))
   user  system elapsed 
  0.432   0.112   0.601

Data Import Efficiency – A Case in R

Below is a piece of R snippet comparing the data import efficiencies among CSV, SQLITE, and HDF5. Similar to the case in Python posted yesterday, HDF5 shows the highest efficiency.

> library(RSQLite)
Loading required package: DBI
> library(rhdf5) 
> df <- read.csv('credit_count.csv')
> do.call(cat, list(nrow(df), ncol(df), '\n'))
13444 14 
> 
> # WRITE DF INTO SQLITE
> if(file.exists('data.db')) file.remove('data.db')
[1] TRUE
> con <- dbConnect("SQLite", dbname = "data.db")
> dbWriteTable(con, "tbl", df)
[1] TRUE
> 
> # WRITE DF INTO HDF5
> if(file.exists('data.h5')) file.remove('data.h5')
[1] TRUE
> h5createFile("data.h5")
[1] TRUE
> h5write(df, 'data.h5', 'tbl')
> 
> # CALCULATE CPU TIMES
> system.time(for(i in 1:10) read.csv('credit_count.csv'))
   user  system elapsed 
  1.148   0.056   1.576 
> system.time(for(i in 1:10) dbReadTable(con, 'tbl'))
   user  system elapsed 
  0.492   0.024   0.649 
> system.time(for(i in 1:10) h5read('data.h5','tbl'))
   user  system elapsed 
  0.164   1.184   1.946

Removing Records by Duplicate Values in R – An Efficiency Comparison

After posting “Removing Records by Duplicate Values” yesterday, I had an interesting communication thread with my friend Jeffrey Allard tonight regarding how to code this in R, a combination of order() and duplicated() or sqldf().

Afterward, I did a simple efficiency comparison between two methods as below. The comparison result is pretty self-explanatory. In terms of “user time”, dedup1() is at least 10 times more efficient than dedup2().

> library(sqldf)
> df1 <- read.table("../data/credit_count.txt", header = TRUE, sep = ",")
> cat(nrow(df1), ncol(df1), '\n')
13444 14
> # DEDUP WITH ORDER() AND DUPLICATED()
> dedup1 <- function(n){
+   for (i in 1:n){
+     df12 <- df1[order(df1$MAJORDRG, df1$INCOME), ]
+     df13 <- df12[!duplicated(df12$MAJORDRG), ]
+   }
+ }
> # DEDUP WITH SQLDF()
> dedup2 <- function(n){
+   for (i in 1:n){
+     df22 <- sqldf("select * from df1 order by MAJORDRG, INCOME")
+     df23 <- sqldf("select a.* from df22 as a inner join (select MAJORDRG, min(rowid) as min_id from df22 group by MAJORDRG) as b on a.MAJORDRG = b.MAJORDRG and a.rowid = b.min_id")
+   }
+ }
> # RUN BOTH METHODS 100 TIMES AND COMPARE CPU TIMES
> system.time(dedup2(100))
   user  system elapsed
 22.581   1.684  26.965
> system.time(dedup1(100))
   user  system elapsed
  1.732   0.080   2.033

Removing Records by Duplicate Values

Removing records from a data table based on duplicate values in one or more columns is a commonly used but important data cleaning technique. Below shows an example about how to accomplish this task by SAS, R, and Python respectively.

SAS Example

data _data_;
  input label $ value;
datalines;
A     4
B     3
C     6
B     3
B     1
A     2
A     4
A     4
;
run;

proc sort data = _last_;
  by label value;
run;

data _data_;
  set _last_;
  by label;
  if first.label then output;
run;

proc print data = _last_ noobs;
run;

/* OUTPUT:
label    value
  A        2  
  B        1  
  C        6 
*/

R Example

> # INPUT DATA INT THE CONSOLE
> df <- read.table(header = T, text = '
+  label value
+      A     4
+      B     3
+      C     6
+      B     3
+      B     1
+      A     2
+      A     4
+      A     4
+ ')
> # SORT DATA FRAME BY COLUMNS
> df2 <- df[order(df$label, df$value), ]
> print(df2)
  label value
6     A     2
1     A     4
7     A     4
8     A     4
5     B     1
2     B     3
4     B     3
3     C     6
> # DEDUP RECORDS
> df3 <- df2[!duplicated(df2$label), ]
> print(df3)
  label value
6     A     2
5     B     1
3     C     6

Python Example

In [1]: import pandas as pd

In [2]: # INPUT DATA INTO DATAFRAME

In [3]: df = pd.DataFrame({'label': ['A', 'B', 'C'] + ['B'] * 2 + ['A'] * 3, 'value': [4, 3, 6, 3, 1, 2, 4, 4]})

In [4]: # SORT DATA BY COLUMNS

In [5]: df2 = df.sort(['label', 'value'])

In [6]: print(df2)
  label  value
5     A      2
0     A      4
6     A      4
7     A      4
4     B      1
1     B      3
3     B      3
2     C      6

In [7]: # DEDUP RECORDS

In [8]: df3 = df2.drop_duplicates(['label'])

In [9]: print(df3)
  label  value
5     A      2
4     B      1
2     C      6

Generalized Boosted Regression with A Monotonic Marginal Effect for Each Predictor

In the practice of risk modeling, it is sometimes mandatory to maintain a monotonic relationship between the response and each predictor. Below is a demonstration showing how to develop a generalized boosted regression with a monotonic marginal effect for each predictor.

##################################################
# FIT A GENERALIZED BOOSTED REGRESSION MODEL     #
# FOLLOWING FRIEDMAN'S GRADIENT BOOSTING MACHINE #
##################################################

library(gbm)
data1 <- read.table("/home/liuwensui/Documents/data/credit_count.txt", header = TRUE, sep = ",")
data2 <- data1[data1$CARDHLDR == 1, -1]

# Calculate the Correlation Direction Between Response and Predictors
mono <- cor(data2[, 1], data2[, -1], method = 'spearman') / abs(cor(data2[, 1], data2[, -1], method = 'spearman'))

# Train a Generalized Boosted Regression
set.seed(2012)
m <- gbm(BAD ~ ., data = data2, var.monotone = mono, distribution = "bernoulli", n.trees = 1000, shrinkage = 0.01,
         interaction.depth = 1, bag.fraction = 0.5, train.fraction = 0.8, cv.folds = 5, verbose = FALSE)

# Return the Optimal # of Iterations
best.iter <- gbm.perf(m, method = "cv", plot.it = FALSE)
print(best.iter)

# Calculate Variable Importance
imp <- summary(m, n.trees = best.iter, plotit = FALSE)

# Plot Variable Importance
png('/home/liuwensui/Documents/code/imp.png', width = 1000, height = 400)
par(mar = c(3, 0, 4, 0))
barplot(imp[, 2], col = gray(0:(ncol(data2) - 1) / (ncol(data2) - 1)),
        names.arg = imp[, 1], yaxt = "n", cex.names = 1);
title(main = list("Importance Rank of Predictors", font = 4, cex = 1.5));
dev.off()

# Plot Marginal Effects of Predictors
png('/home/liuwensui/Documents/code/mareff.png', width = 1000, height = 1000)
par(mfrow = c(3, 4), mar = c(1, 1, 1, 1), pty = "s")
for (i in 1:(ncol(data2) - 1))
  {
    plot.gbm(m, i, best.iter);
    rug(data2[, i + 1])
  }
dev.off()

Plot of Variable Importance

Plot of Monotonic Marginal Effects

Fractional Logit Model with Python

In [1]: import pandas as pd

In [2]: import statsmodels.api as sm

In [3]: data = pd.read_table('/home/liuwensui/Documents/data/csdata.txt')

In [4]: Y = data.LEV_LT3

In [5]: X = sm.add_constant(data[['COLLAT1', 'SIZE1', 'PROF2', 'LIQ', 'IND3A']])

In [6]: # Discrete Dependent Variable Models with Logit Link

In [7]: mod = sm.Logit(Y, X)

In [8]: res = mod.fit()
Optimization terminated successfully.
         Current function value: 882.448249
         Iterations 8

In [9]: print res.summary()
                           Logit Regression Results                           
==============================================================================
Dep. Variable:                LEV_LT3   No. Observations:                 4421
Model:                          Logit   Df Residuals:                     4415
Method:                           MLE   Df Model:                            5
Date:                Sun, 16 Dec 2012   Pseudo R-squ.:                 0.04022
Time:                        23:40:40   Log-Likelihood:                -882.45
converged:                       True   LL-Null:                       -919.42
                                        LLR p-value:                 1.539e-14
==============================================================================
                 coef    std err          z      P>|z|      [95.0% Conf. Int.]
------------------------------------------------------------------------------
COLLAT1        1.2371      0.260      4.756      0.000         0.727     1.747
SIZE1          0.3590      0.037      9.584      0.000         0.286     0.432
PROF2         -3.1431      0.739     -4.254      0.000        -4.591    -1.695
LIQ           -1.3825      0.357     -3.867      0.000        -2.083    -0.682
IND3A          0.5466      0.141      3.867      0.000         0.270     0.824
const         -7.2498      0.567    -12.779      0.000        -8.362    -6.138
==============================================================================

In [10]: # Print Marginal Effects

In [11]: print pd.DataFrame(res.margeff(), index = X.columns[:(len(X.columns) - 1)], columns = ['MargEffects'])
         MargEffects
COLLAT1     0.096447
SIZE1       0.027988
PROF2      -0.245035
LIQ        -0.107778
IND3A       0.042611

In [12]: # Address the same type of model with R by Pyper

In [13]: import pyper as pr

In [14]: r = pr.R(use_pandas = True)

In [15]: r.r_data = data

In [16]: # Indirect Estimation of Discrete Dependent Variable Models

In [17]: r('data <- rbind(cbind(r_data, y = 1, wt = r_data$LEV_LT3), cbind(r_data, y = 0, wt = 1 - r_data$LEV_LT3))')
Out[17]: 'try({data <- rbind(cbind(r_data, y = 1, wt = r_data$LEV_LT3), cbind(r_data, y = 0, wt = 1 - r_data$LEV_LT3))})\n'

In [18]: r('mod <- glm(y ~ COLLAT1 + SIZE1 + PROF2 + LIQ + IND3A, weights = wt, subset = (wt > 0), data = data, family = binomial)')
Out[18]: 'try({mod <- glm(y ~ COLLAT1 + SIZE1 + PROF2 + LIQ + IND3A, weights = wt, subset = (wt > 0), data = data, family = binomial)})\nWarning message:\nIn eval(expr, envir, enclos) : non-integer #successes in a binomial glm!\n'

In [19]: print r('summary(mod)')
try({summary(mod)})

Call:
glm(formula = y ~ COLLAT1 + SIZE1 + PROF2 + LIQ + IND3A, family = binomial, 
    data = data, weights = wt, subset = (wt > 0))

Deviance Residuals: 
    Min       1Q   Median       3Q      Max  
-1.0129  -0.4483  -0.3173  -0.1535   2.5379  

Coefficients:
            Estimate Std. Error z value Pr(>|z|)    
(Intercept) -7.24979    0.56734 -12.779  < 2e-16 ***
COLLAT1      1.23715    0.26012   4.756 1.97e-06 ***
SIZE1        0.35901    0.03746   9.584  < 2e-16 ***
PROF2       -3.14313    0.73895  -4.254 2.10e-05 ***
LIQ         -1.38249    0.35749  -3.867  0.00011 ***
IND3A        0.54658    0.14136   3.867  0.00011 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 

(Dispersion parameter for binomial family taken to be 1)

    Null deviance: 2692.0  on 5536  degrees of freedom
Residual deviance: 2456.4  on 5531  degrees of freedom
AIC: 1995.4

Number of Fisher Scoring iterations: 6

Exchange Data between Python and R with SQLite

SQLite is a light-weight database with zero-configuration. Being fast, reliable, and simple, SQLite is a good choice to store / query large data, e.g. terabytes, and is well supported by both Python and R.

In [1]: # LOAD PYTHON PACKAGES

In [2]: import pandas as pd

In [3]: import pandas.io.sql as pd_sql

In [4]: import sqlite3 as sql

In [5]: import pyper as pr

In [6]: # READ DATA

In [7]: py_data = pd.read_table("/home/liuwensui/Documents/data/csdata.txt")

In [8]: print py_data
<class 'pandas.core.frame.DataFrame'>
Int64Index: 4421 entries, 0 to 4420
Data columns:
LEV_LT3     4421  non-null values
TAX_NDEB    4421  non-null values
COLLAT1     4421  non-null values
SIZE1       4421  non-null values
PROF2       4421  non-null values
GROWTH2     4421  non-null values
AGE         4421  non-null values
LIQ         4421  non-null values
IND2A       4421  non-null values
IND3A       4421  non-null values
IND4A       4421  non-null values
IND5A       4421  non-null values
dtypes: float64(7), int64(5)

In [9]: # CREATE A CONNECTION TO SQLITE DB

In [10]: con = sql.connect("/home/liuwensui/Documents/data/tmp.db")

In [11]: # WRITE THE DATAFRAME INTO SQLITE DB

In [12]: con.execute("drop table if exists tbldata")
Out[12]: <sqlite3.Cursor at 0xa00d820>

In [13]: pd_sql.write_frame(py_data, "tbldata", con)

In [14]: con.commit()

In [15]: # TEST THE DATA WRITTEN INTO SQLITE DB

In [16]: test_data = pd_sql.read_frame("select * from tbldata limit 5", con)

In [17]: print test_data
   LEV_LT3  TAX_NDEB   COLLAT1      SIZE1     PROF2    GROWTH2  AGE       LIQ  IND2A  IND3A  IND4A  IND5A
0        0  0.530298  0.079172  13.131993  0.082016   1.166493   53  0.385779      0      0      1      0
1        0  0.370025  0.040745  12.132626  0.082615  11.092048   54  0.224123      1      0      0      0
2        0  0.636884  0.307242  13.322921  0.245129  -6.316099   43  0.055441      1      0      0      0
3        0  0.815549  0.295864  16.274536  0.164052   1.394809   24  0.016731      1      0      0      0
4        0  0.097690  0.033567  13.491299  0.160505  10.204010   49  0.387136      1      0      0      0

In [18]: # CREATE A R INSTANCE

In [19]: r = pr.R()

In [20]: # LOAD R LIBRARY

In [21]: print r("library(sqldf)")
try({library(sqldf)})
Loading required package: DBI
Loading required package: gsubfn
Loading required package: proto
Loading required namespace: tcltk
Loading Tcl/Tk interface ... done
Loading required package: chron
Loading required package: RSQLite
Loading required package: RSQLite.extfuns


In [22]: # READ DATA FROM SQLITE DB

In [23]: print r("r_data <- sqldf('select * from tbldata', dbname = '/home/liuwensui/Documents/data/tmp.db')")
try({r_data <- sqldf('select * from tbldata', dbname = '/home/liuwensui/Documents/data/tmp.db')})
Loading required package: tcltk


In [24]: print r("str(r_data)")
try({str(r_data)})
'data.frame':	4421 obs. of  12 variables:
 $ LEV_LT3 : num  0 0 0 0 0 0 0 0 0 0 ...
 $ TAX_NDEB: num  0.5303 0.37 0.6369 0.8155 0.0977 ...
 $ COLLAT1 : num  0.0792 0.0407 0.3072 0.2959 0.0336 ...
 $ SIZE1   : num  13.1 12.1 13.3 16.3 13.5 ...
 $ PROF2   : num  0.082 0.0826 0.2451 0.1641 0.1605 ...
 $ GROWTH2 : num  1.17 11.09 -6.32 1.39 10.2 ...
 $ AGE     : int  53 54 43 24 49 24 35 77 33 81 ...
 $ LIQ     : num  0.3858 0.2241 0.0554 0.0167 0.3871 ...
 $ IND2A   : int  0 1 1 1 1 1 1 1 1 0 ...
 $ IND3A   : int  0 0 0 0 0 0 0 0 0 0 ...
 $ IND4A   : int  1 0 0 0 0 0 0 0 0 0 ...
 $ IND5A   : int  0 0 0 0 0 0 0 0 0 1 ...

Another Way to Access R from Python – PypeR

Different from RPy2, PypeR provides another simple way to access R from Python through pipes (http://www.jstatsoft.org/v35/c02/paper). This handy feature enables data analysts to do the data munging with python and the statistical analysis with R by passing objects interactively between two computing systems.

Below is a simple demonstration on how to call R within Python through RypeR, estimate a Beta regression, and then return the model prediction from R back to Python.

In [1]: # LOAD PYTHON PACKAGES

In [2]: import pandas as pd

In [3]: import pyper as pr

In [4]: # READ DATA

In [5]: data = pd.read_table("/home/liuwensui/Documents/data/csdata.txt", header = 0)

In [6]: # CREATE A R INSTANCE WITH PYPER

In [7]: r = pr.R(use_pandas = True)

In [8]: # PASS DATA FROM PYTHON TO R

In [9]: r.assign("rdata", data)

In [10]: # SHOW DATA SUMMARY

In [11]: print r("summary(rdata)")
try({summary(rdata)})
    LEV_LT3           TAX_NDEB           COLLAT1           SIZE1       
 Min.   :0.00000   Min.   :  0.0000   Min.   :0.0000   Min.   : 7.738  
 1st Qu.:0.00000   1st Qu.:  0.3494   1st Qu.:0.1241   1st Qu.:12.317  
 Median :0.00000   Median :  0.5666   Median :0.2876   Median :13.540  
 Mean   :0.09083   Mean   :  0.8245   Mean   :0.3174   Mean   :13.511  
 3rd Qu.:0.01169   3rd Qu.:  0.7891   3rd Qu.:0.4724   3rd Qu.:14.751  
 Max.   :0.99837   Max.   :102.1495   Max.   :0.9953   Max.   :18.587  
     PROF2              GROWTH2             AGE              LIQ         
 Min.   :0.0000158   Min.   :-81.248   Min.   :  6.00   Min.   :0.00000  
 1st Qu.:0.0721233   1st Qu.: -3.563   1st Qu.: 11.00   1st Qu.:0.03483  
 Median :0.1203435   Median :  6.164   Median : 17.00   Median :0.10854  
 Mean   :0.1445929   Mean   : 13.620   Mean   : 20.37   Mean   :0.20281  
 3rd Qu.:0.1875148   3rd Qu.: 21.952   3rd Qu.: 25.00   3rd Qu.:0.29137  
 Max.   :1.5902009   Max.   :681.354   Max.   :210.00   Max.   :1.00018  
     IND2A            IND3A            IND4A             IND5A        
 Min.   :0.0000   Min.   :0.0000   Min.   :0.00000   Min.   :0.00000  
 1st Qu.:0.0000   1st Qu.:0.0000   1st Qu.:0.00000   1st Qu.:0.00000  
 Median :1.0000   Median :0.0000   Median :0.00000   Median :0.00000  
 Mean   :0.6116   Mean   :0.1902   Mean   :0.02692   Mean   :0.09907  
 3rd Qu.:1.0000   3rd Qu.:0.0000   3rd Qu.:0.00000   3rd Qu.:0.00000  
 Max.   :1.0000   Max.   :1.0000   Max.   :1.00000   Max.   :1.00000  


In [12]: # LOAD R PACKAGE

In [13]: r("library(betareg)")
Out[13]: 'try({library(betareg)})\nLoading required package: Formula\n'

In [14]: # ESTIMATE A BETA REGRESSION

In [15]: r("m <- betareg(LEV_LT3 ~ SIZE1 + PROF2 + GROWTH2 + AGE + IND3A, data = rdata, subset = LEV_LT3 > 0)")
Out[15]: 'try({m <- betareg(LEV_LT3 ~ SIZE1 + PROF2 + GROWTH2 + AGE + IND3A, data = rdata, subset = LEV_LT3 > 0)})\n'

In [16]: # OUTPUT MODEL SUMMARY

In [17]: print r("summary(m)")
try({summary(m)})

Call:
betareg(formula = LEV_LT3 ~ SIZE1 + PROF2 + GROWTH2 + AGE + IND3A, data = rdata, 
    subset = LEV_LT3 > 0)

Standardized weighted residuals 2:
    Min      1Q  Median      3Q     Max 
-7.2802 -0.5194  0.0777  0.6037  5.8777 

Coefficients (mean model with logit link):
             Estimate Std. Error z value Pr(>|z|)    
(Intercept)  1.229773   0.312990   3.929 8.53e-05 ***
SIZE1       -0.105009   0.021211  -4.951 7.39e-07 ***
PROF2       -2.414794   0.377271  -6.401 1.55e-10 ***
GROWTH2      0.003306   0.001043   3.169  0.00153 ** 
AGE         -0.004999   0.001795  -2.786  0.00534 ** 
IND3A        0.688314   0.074069   9.293  < 2e-16 ***

Phi coefficients (precision model with identity link):
      Estimate Std. Error z value Pr(>|z|)    
(phi)   3.9362     0.1528   25.77   <2e-16 ***
---
Signif. codes:  0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1 

Type of estimator: ML (maximum likelihood)
Log-likelihood: 266.7 on 7 Df
Pseudo R-squared: 0.1468
Number of iterations: 25 (BFGS) + 2 (Fisher scoring) 


In [18]: # CALCULATE MODEL PREDICTION

In [19]: r("beta_fit <- predict(m, link = 'response')")
Out[19]: "try({beta_fit <- predict(m, link = 'response')})\n"

In [20]: # SHOW PREDICTION SUMMARY IN R

In [21]: print r("summary(beta_fit)")
try({summary(beta_fit)})
   Min. 1st Qu.  Median    Mean 3rd Qu.    Max. 
 0.1634  0.3069  0.3465  0.3657  0.4007  0.6695 


In [22]: # PASS DATA FROM R TO PYTHON

In [23]: pydata = pd.DataFrame(r.get("beta_fit"), columns = ["y_hat"])

In [24]: # SHOW PREDICTION SUMMARY IN PYTHON

In [25]: pydata.y_hat.describe()
Out[25]: 
count    1116.000000
mean        0.365675
std         0.089804
min         0.163388
25%         0.306897
50%         0.346483
75%         0.400656
max         0.669489

Run R Code Within Python On The Fly

Below is an example showing how to run R code within python, which is an extremely attractive feature for hardcore R programmers.

In [1]: import rpy2.robjects as ro

In [2]: _null_ = ro.r('data <- read.table("/home/liuwensui/data/credit_count.txt", header = TRUE, sep = ",")')

In [3]: print ro.r('str(data)')
'data.frame':	13444 obs. of  14 variables:
 $ CARDHLDR: int  0 0 1 1 1 1 1 1 1 1 ...
 $ DEFAULT : int  0 0 0 0 0 0 0 0 0 0 ...
 $ AGE     : num  27.2 40.8 37.7 42.5 21.3 ...
 $ ACADMOS : int  4 111 54 60 8 78 25 6 20 162 ...
 $ ADEPCNT : int  0 3 3 3 0 1 1 0 3 7 ...
 $ MAJORDRG: int  0 0 0 0 0 0 0 0 0 0 ...
 $ MINORDRG: int  0 0 0 0 0 0 0 0 0 0 ...
 $ OWNRENT : int  0 1 1 1 0 0 1 0 0 1 ...
 $ INCOME  : num  1200 4000 3667 2000 2917 ...
 $ SELFEMPL: int  0 0 0 0 0 0 0 0 0 0 ...
 $ INCPER  : num  18000 13500 11300 17250 35000 ...
 $ EXP_INC : num  0.000667 0.000222 0.03327 0.048427 0.016523 ...
 $ SPENDING: num  NA NA 122 96.9 48.2 ...
 $ LOGSPEND: num  NA NA 4.8 4.57 3.88 ...
NULL

In [4]: _null_ = ro.r('sample <- data[data$CARDHLDR == 1,]')

In [5]: print ro.r('summary(sample)')
    CARDHLDR    DEFAULT             AGE           ACADMOS         ADEPCNT      
 Min.   :1   Min.   :0.00000   Min.   : 0.00   Min.   :  0.0   Min.   :0.0000  
 1st Qu.:1   1st Qu.:0.00000   1st Qu.:25.75   1st Qu.: 12.0   1st Qu.:0.0000  
 Median :1   Median :0.00000   Median :31.67   Median : 30.0   Median :0.0000  
 Mean   :1   Mean   :0.09487   Mean   :33.67   Mean   : 55.9   Mean   :0.9904  
 3rd Qu.:1   3rd Qu.:0.00000   3rd Qu.:39.75   3rd Qu.: 72.0   3rd Qu.:2.0000  
 Max.   :1   Max.   :1.00000   Max.   :88.67   Max.   :564.0   Max.   :9.0000  
    MAJORDRG         MINORDRG         OWNRENT           INCOME    
 Min.   :0.0000   Min.   :0.0000   Min.   :0.0000   Min.   :  50  
 1st Qu.:0.0000   1st Qu.:0.0000   1st Qu.:0.0000   1st Qu.:1750  
 Median :0.0000   Median :0.0000   Median :0.0000   Median :2292  
 Mean   :0.1433   Mean   :0.2207   Mean   :0.4791   Mean   :2606  
 3rd Qu.:0.0000   3rd Qu.:0.0000   3rd Qu.:1.0000   3rd Qu.:3042  
 Max.   :6.0000   Max.   :7.0000   Max.   :1.0000   Max.   :8333  
    SELFEMPL           INCPER          EXP_INC            SPENDING       
 Min.   :0.00000   Min.   :   700   Min.   :0.000096   Min.   :   0.111  
 1st Qu.:0.00000   1st Qu.: 12900   1st Qu.:0.025998   1st Qu.:  58.753  
 Median :0.00000   Median : 20000   Median :0.058957   Median : 139.992  
 Mean   :0.05362   Mean   : 22581   Mean   :0.090744   Mean   : 226.983  
 3rd Qu.:0.00000   3rd Qu.: 28337   3rd Qu.:0.116123   3rd Qu.: 284.440  
 Max.   :1.00000   Max.   :150000   Max.   :2.037728   Max.   :4810.309  
    LOGSPEND     
 Min.   :-2.197  
 1st Qu.: 4.073  
 Median : 4.942  
 Mean   : 4.729  
 3rd Qu.: 5.651  
 Max.   : 8.479  

In [6]: print ro.r('summary(glm(DEFAULT ~ MAJORDRG + MINORDRG + OWNRENT + INCOME, data = sample, family = binomial))')

Call:
glm(formula = DEFAULT ~ MAJORDRG + MINORDRG + OWNRENT + INCOME, 
    family = binomial, data = sample)

Deviance Residuals: 
    Min       1Q   Median       3Q      Max  
-0.9587  -0.5003  -0.4351  -0.3305   3.1928  

Coefficients:
              Estimate Std. Error z value Pr(>|z|)    
(Intercept) -1.204e+00  9.084e-02 -13.259  < 2e-16 ***
MAJORDRG     2.031e-01  6.926e-02   2.933  0.00336 ** 
MINORDRG     2.027e-01  4.798e-02   4.225 2.38e-05 ***
OWNRENT     -2.012e-01  7.163e-02  -2.809  0.00496 ** 
INCOME      -4.422e-04  4.044e-05 -10.937  < 2e-16 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 

(Dispersion parameter for binomial family taken to be 1)

    Null deviance: 6586.1  on 10498  degrees of freedom
Residual deviance: 6376.2  on 10494  degrees of freedom
AIC: 6386.2

Number of Fisher Scoring iterations: 6

A Light Touch on RPy2

For a statistical analyst, the first step to start a data analysis project is to import the data into the program and then to screen the descriptive statistics of the data. In python, we can easily do so with pandas package.

In [1]: import pandas as pd

In [2]: data = pd.read_table("/home/liuwensui/Documents/data/csdata.txt", header = 0)

In [3]: pd.set_printoptions(precision = 5)

In [4]: print data.describe().to_string()
         LEV_LT3   TAX_NDEB    COLLAT1      SIZE1      PROF2    GROWTH2        AGE        LIQ      IND2A      IND3A      IND4A      IND5A
count  4421.0000  4421.0000  4421.0000  4421.0000  4421.0000  4421.0000  4421.0000  4421.0000  4421.0000  4421.0000  4421.0000  4421.0000
mean      0.0908     0.8245     0.3174    13.5109     0.1446    13.6196    20.3664     0.2028     0.6116     0.1902     0.0269     0.0991
std       0.1939     2.8841     0.2272     1.6925     0.1109    36.5177    14.5390     0.2333     0.4874     0.3925     0.1619     0.2988
min       0.0000     0.0000     0.0000     7.7381     0.0000   -81.2476     6.0000     0.0000     0.0000     0.0000     0.0000     0.0000
25%       0.0000     0.3494     0.1241    12.3170     0.0721    -3.5632    11.0000     0.0348     0.0000     0.0000     0.0000     0.0000
50%       0.0000     0.5666     0.2876    13.5396     0.1203     6.1643    17.0000     0.1085     1.0000     0.0000     0.0000     0.0000
75%       0.0117     0.7891     0.4724    14.7511     0.1875    21.9516    25.0000     0.2914     1.0000     0.0000     0.0000     0.0000
max       0.9984   102.1495     0.9953    18.5866     1.5902   681.3542   210.0000     1.0002     1.0000     1.0000     1.0000     1.0000

Tonight, I’d like to add some spice to my python learning experience and do the work in a different flavor with rpy2 package, which allows me to call R functions from python.

 
In [5]: import rpy2.robjects as ro

In [6]: rdata = ro.packages.importr('utils').read_table("/home/liuwensui/Documents/data/csdata.txt", header = True)

In [7]: print ro.r.summary(rdata)
    LEV_LT3           TAX_NDEB           COLLAT1           SIZE1       
 Min.   :0.00000   Min.   :  0.0000   Min.   :0.0000   Min.   : 7.738  
 1st Qu.:0.00000   1st Qu.:  0.3494   1st Qu.:0.1241   1st Qu.:12.317  
 Median :0.00000   Median :  0.5666   Median :0.2876   Median :13.540  
 Mean   :0.09083   Mean   :  0.8245   Mean   :0.3174   Mean   :13.511  
 3rd Qu.:0.01169   3rd Qu.:  0.7891   3rd Qu.:0.4724   3rd Qu.:14.751  
 Max.   :0.99837   Max.   :102.1495   Max.   :0.9953   Max.   :18.587  
     PROF2              GROWTH2             AGE              LIQ         
 Min.   :0.0000158   Min.   :-81.248   Min.   :  6.00   Min.   :0.00000  
 1st Qu.:0.0721233   1st Qu.: -3.563   1st Qu.: 11.00   1st Qu.:0.03483  
 Median :0.1203435   Median :  6.164   Median : 17.00   Median :0.10854  
 Mean   :0.1445929   Mean   : 13.620   Mean   : 20.37   Mean   :0.20281  
 3rd Qu.:0.1875148   3rd Qu.: 21.952   3rd Qu.: 25.00   3rd Qu.:0.29137  
 Max.   :1.5902009   Max.   :681.354   Max.   :210.00   Max.   :1.00018  
     IND2A            IND3A            IND4A             IND5A        
 Min.   :0.0000   Min.   :0.0000   Min.   :0.00000   Min.   :0.00000  
 1st Qu.:0.0000   1st Qu.:0.0000   1st Qu.:0.00000   1st Qu.:0.00000  
 Median :1.0000   Median :0.0000   Median :0.00000   Median :0.00000  
 Mean   :0.6116   Mean   :0.1902   Mean   :0.02692   Mean   :0.09907  
 3rd Qu.:1.0000   3rd Qu.:0.0000   3rd Qu.:0.00000   3rd Qu.:0.00000  
 Max.   :1.0000   Max.   :1.0000   Max.   :1.00000   Max.   :1.00000

As shown above, the similar analysis can be conducted by calling R functions with python. This feature enables us to extract and process the data effectively with python without losing the graphical and statistical functionality of R.

Download Stock Price Online with R

library(chron)
library(zoo)

# STOCK TICKER OF Fifth Third Bancorp 
stock <- 'FITB'

# DEFINE STARTING DATE
start.date  <- 1
start.month <- 1
start.year  <- 2012

# DEFINE ENDING DATE
end.date  <- 11
end.month <- 10
end.year  <- 2012

# DEFINE URL LINK
link <- paste("http://ichart.finance.yahoo.com/table.csv?s=", stock,
              "&a=", as.character(start.month - 1), 
              "&b=", as.character(start.date), 
              "&c=", as.character(start.year),
              "&d=", as.character(end.month - 1),
              "&e=", as.character(end.date), 
              "&f=", as.character(end.year),
              "&g=d&ignore=.csv", sep = '')

# DOWNLOAD STOCK PRICE AS CSV FILE
download.file(link, "c:/projects/data.csv")

# READ THE CSV FILE INTO R
data <- read.csv("c:/projects/data.csv")

# CONVERT CHARACTER INTO DATE
dt <- dates(as.character(data[, 1]), format = "y-m-d")

# CONVERT DATA FRAME INTO TS OBJECT
ts <- zoo(data[, 2:5], dt)

# CREATE A PLOT FOR OPEN/CLOSE/HIGH/LOW PRICES
plot(ts, main = stock)

Fit and Visualize A MARS Model

#################################################
## FIT A MULTIVARIATE ADAPTIVE REGRESSION      ##
## SPLINES MODEL (MARS) USING MDA PACKAGE      ##
## DEVELOPED BY HASTIE AND TIBSHIRANI          ##
#################################################

# LOAD LIBRARIES AND DATA
library(MASS);
library(mda);
data(Boston);

# FIT AN ADDITIVE MARS MODEL
mars.fit <- mars(Boston[, -14], Boston[14], degree = 1, prune = TRUE, forward.step = TRUE)

# SHOW CUT POINTS OF MARS
cuts <- mars.fit$cuts[mars.fit$selected.terms, ];
dimnames(cuts) <- list(NULL, names(Boston)[-14]);
print(cuts);

factor <- mars.fit$factor[mars.fit$selected.terms, ];
dimnames(factor) <- list(NULL, names(Boston)[-14]);
print(factor);

# EXAMINE THE FITTED FUNCTION BETWEEN EACH IV AND DV
par(mfrow = c(3, 5), mar=c(2, 2, 2, 2), pty="s")
for (i in 1:13)
  {
    xp <- matrix(sapply(Boston[1:13], mean), nrow(Boston), ncol(Boston) - 1, byrow = TRUE);
    xr <- sapply(Boston, range);
    xp[, i] <- seq(xr[1, i], xr[2, i], len=nrow(Boston));
    xf <- predict(mars.fit, xp);
    plot(xp[, i], xf, xlab = names(Boston)[i], ylab = "", type = "l");
  }

	head(df, 2)
	# tot_derog tot_tr age_oldest_tr tot_open_tr tot_rev_tr tot_rev_debt tot_rev_line rev_util bureau_score ltv tot_income bad
	#1 6 7 46 NaN NaN NaN NaN 0 747 109 4800.00 0
	#2 0 21 153 6 1 97 4637 2 744 97 5833.33 0

	batch_bin(df, 1)
	#\|var \| nbin\| unique\| miss\| min\| median\| max\| ks\| iv\|
	#\|:————–\|—–:\|——-:\|—–:\|—-:\|——–:\|——–:\|——–:\|——-:\|
	#\|tot_derog \| 5\| 29\| 213\| 0\| 0.0\| 32\| 18.9469\| 0.2055\|
	#\|tot_tr \| 5\| 67\| 213\| 0\| 16.0\| 77\| 15.7052\| 0.1302\|
	#\|age_oldest_tr \| 10\| 460\| 216\| 1\| 137.0\| 588\| 19.9821\| 0.2539\|
	#\|tot_open_tr \| 3\| 26\| 1416\| 0\| 5.0\| 26\| 6.7157\| 0.0240\|
	#\|tot_rev_tr \| 3\| 21\| 636\| 0\| 3.0\| 24\| 9.0104\| 0.0717\|
	#\|tot_rev_debt \| 3\| 3880\| 477\| 0\| 3009.5\| 96260\| 8.5102\| 0.0627\|
	#\|tot_rev_line \| 9\| 3617\| 477\| 0\| 10573.0\| 205395\| 26.4924\| 0.4077\|
	#\|rev_util \| 2\| 101\| 0\| 0\| 30.0\| 100\| 15.1570\| 0.0930\|
	#\|bureau_score \| 12\| 315\| 315\| 443\| 692.5\| 848\| 34.8028\| 0.7785\|
	#\|ltv \| 7\| 145\| 1\| 0\| 100.0\| 176\| 15.6254\| 0.1538\|
	#\|tot_income \| 4\| 1639\| 5\| 0\| 3400.0\| 8147167\| 9.1526\| 0.0500\|

	batch_bin(df, 1)$BinLst[["rev_util"]]$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 01 $X <= 31 3007 0.5152 0 472 0.1570 -0.3250 0.0493 15.157
	# 02 $X > 31 2830 0.4848 0 724 0.2558 0.2882 0.0437 0.000

	batch_bin(df, 4)
	#\|var \| nbin\| unique\| miss\| min\| median\| max\| ks\| iv\|
	#\|:————–\|—–:\|——-:\|—–:\|—-:\|——–:\|——–:\|——–:\|——-:\|
	#\|tot_derog \| 8\| 29\| 213\| 0\| 0.0\| 32\| 20.0442\| 0.2556\|
	#\|tot_tr \| 13\| 67\| 213\| 0\| 16.0\| 77\| 17.3002\| 0.1413\|
	#\|age_oldest_tr \| 22\| 460\| 216\| 1\| 137.0\| 588\| 20.3646\| 0.2701\|
	#\|tot_open_tr \| 6\| 26\| 1416\| 0\| 5.0\| 26\| 6.8695\| 0.0274\|
	#\|tot_rev_tr \| 4\| 21\| 636\| 0\| 3.0\| 24\| 9.0779\| 0.0789\|
	#\|tot_rev_debt \| 9\| 3880\| 477\| 0\| 3009.5\| 96260\| 8.8722\| 0.0848\|
	#\|tot_rev_line \| 21\| 3617\| 477\| 0\| 10573.0\| 205395\| 26.8943\| 0.4445\|
	#\|rev_util \| 11\| 101\| 0\| 0\| 30.0\| 100\| 16.9615\| 0.1635\|
	#\|bureau_score \| 30\| 315\| 315\| 443\| 692.5\| 848\| 35.2651\| 0.8344\|
	#\|ltv \| 17\| 145\| 1\| 0\| 100.0\| 176\| 16.8807\| 0.1911\|
	#\|tot_income \| 17\| 1639\| 5\| 0\| 3400.0\| 8147167\| 10.3386\| 0.0775\|

	batch_bin(df, 4)$BinLst[["rev_util"]]$df
	# bin rule freq dist mv_cnt bad_freq bad_rate woe iv ks
	# 01 $X <= 24 2653 0.4545 0 414 0.1560 -0.3320 0.0452 13.6285
	# 02 $X > 24 & $X <= 36 597 0.1023 0 96 0.1608 -0.2963 0.0082 16.3969
	# 03 $X > 36 & $X <= 40 182 0.0312 0 32 0.1758 -0.1890 0.0011 16.9533
	# 04 $X > 40 & $X <= 58 669 0.1146 0 137 0.2048 -0.0007 0.0000 16.9615
	# 05 $X > 58 & $X <= 60 77 0.0132 0 16 0.2078 0.0177 0.0000 16.9381
	# 06 $X > 60 & $X <= 73 442 0.0757 0 103 0.2330 0.1647 0.0022 15.6305
	# 07 $X > 73 & $X <= 75 62 0.0106 0 16 0.2581 0.2999 0.0010 15.2839
	# 08 $X > 75 & $X <= 83 246 0.0421 0 70 0.2846 0.4340 0.0089 13.2233
	# 09 $X > 83 & $X <= 96 376 0.0644 0 116 0.3085 0.5489 0.0225 9.1266
	# 10 $X > 96 & $X <= 98 50 0.0086 0 17 0.3400 0.6927 0.0049 8.4162
	# 11 $X > 98 483 0.0827 0 179 0.3706 0.8263 0.0695 0.0000