November 2014, Vol. 26, No. 11, Pages 2541-2569
Financial risk measures have been used recently in machine learning. For example, v-support vector machine (v-SVM) minimizes the conditional value at risk (CVaR) of margin distribution. The measure is popular in finance because of the subadditivity property, but it is very sensitive to a few outliers in the tail of the distribution. We propose a new classification method, extended robust SVM (ER-SVM), which minimizes an intermediate risk measure between the CVaR and value at risk (VaR) by expecting that the resulting model becomes less sensitive than v-SVM to outliers. We can regard ER-SVM as an extension of robust SVM, which uses a truncated hinge loss. Numerical experiments imply the ER-SVM’s possibility of achieving a better prediction performance with proper parameter setting.