Financial Risk Manager Part 1

Explanation

Model Accuracy Calculation

Model accuracy measures the overall correctness of the model:

• Model A accuracy = (TP + TN) / (TP + TN + FP + FN) = (900 + 100) / (900 + 100 + 50 + 50) = 1000 / 1100 = 0.909
• Model B accuracy = (TP + TN) / (TP + TN + FP + FN) = (870 + 120) / (870 + 120 + 80 + 30) = 990 / 1100 = 0.900

Model A has higher accuracy (0.909 vs 0.900)

Model Precision Calculation

Model precision measures the accuracy of positive predictions:

• Model A precision = TP / (TP + FP) = 900 / (900 + 50) = 900 / 950 = 0.9474
• Model B precision = TP / (TP + FP) = 870 / (870 + 80) = 870 / 950 = 0.9158

Model A has higher precision (0.9474 vs 0.9158)

Conclusion

Both accuracy and precision are higher for Model A, making Model A, Model A the correct answer.