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Bayesian Factorization Machines for Risk Management and Robust Decision Making

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • Pablo Angulo

    (UPM, ETSIN)

  • Víctor Gallego

    (ICMAT)

  • David Gómez-Ullate

    (ICMAT)

  • Pablo Suárez-García

    (UCM, Depto. Física Teórica, Facultad de Física)

Abstract

When considering different allocations of the marketing budget of a firm, some predictions, that correspond to scenarios similar to others observed in the past, can be made with more confidence than others, that correspond to more innovative strategies. Selecting a few relevant features of the predicted probability distribution leads to a multi-objective optimization problem, and the Pareto front contains the most interesting media plans. Using expected return and standard deviation we get the familiar two moment decision model, but other problem specific additional objectives can be incorporated. Factorization Machines, initially introduced for recommendation systems, but later used also for regression, are a good choice for incorporating interaction terms into the model, since they can effectively exploit the sparse nature of typical datasets found in econometrics.

Suggested Citation

  • Pablo Angulo & Víctor Gallego & David Gómez-Ullate & Pablo Suárez-García, 2018. "Bayesian Factorization Machines for Risk Management and Robust Decision Making," Springer Books, in: Marco Corazza & María Durbán & Aurea Grané & Cira Perna & Marilena Sibillo (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 51-55, Springer.
  • Handle: RePEc:spr:sprchp:978-3-319-89824-7_9
    DOI: 10.1007/978-3-319-89824-7_9
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