Optimization of Classifier Performance at Local Operating Range: A Case Study in Fraud Detection

Building classifiers for financial real-world classification problems is often plagued by severely overlapping and highly skewed class distribution. New performance measures such as receiver operating characteristic (ROC) curve and area under ROC curve (AUC) have been recently introduced in evaluating and building classifiers for those kind of problems. They are, however, in-effective to evaluation of classifier's discrimination performance in a particular class of the classification problems that interests lie in only a local operating range of the classifier, In this paper, a new method is proposed that enables us to directly improve classifier's discrimination performance at a desired local operating range by defining and optimizing a partial area under ROC curve or domain-specific curve, which is difficult to achieve with conventional classification accuracy based learning methods. The effectiveness of the proposed approach is demonstrated in terms of fraud detection capability in a real-world fraud detection problem compared with the MSE-based approach.