0.6 Question 5 [4 marks]

Suppose, the average transaction amount across the credit card transactions is $25 per transaction.

Furthermore, let us make the following simplifying assumptions: 1. The average transaction amount

and the number of transactions do not change with time. 2. The issuer earns 3% of a genuine

transaction. 3. If a transaction is fraudulent and not caught by the model, the issuer bears

the cost of refund. 4. A transaction goes through if the model classifies it as genuine (i.e., the

other components in a fraud detection system are irrelevant). 5. Raising a false alarm causes

inconvenience to the customer and loss of revenue for the issuer. The inconvenience cost is 0.1% of

the transaction amount. 6. If a transaction is rejected, then the customer does not re-try.

You are asked to evaluate two models and are given the confusion matrix as below.

We will use the following structure for the confusion matrix:/nConfusion matrix for Logit:

[19580 29]

Training data: 360 31

[4885 18]

Testing data: 77 20

Confusion matrix for Neural Networks:

[19540 9]

Training data: 400 51

4880

Testing data: 82 34

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Q5 (i) [2.5 marks] Based on the above, find the ratio of the income from the logit model predictions

vs the neural network predictions. You should store the income ratio in the given variable. You

should show your working in the markdown cell.

Note Write your working in the Markdown cell below and code in following cells

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TN FN

FP TP

0.6.1 WRITE YOUR ANSWER(S) HERE IN THIS CELL

You can use Markdown syntax here.

[ ]:"""Predefined Variables - Do Not Change their Name;

This is a Read-Only cell. Remember to execute this cell once"""

logit_nn_income_ratio= None

pass

# END - YOUR CODE GOES HERE

[]:"""Populate the variables shown above with appropriate values here"""

#BEGIN - YOUR CODE GOES HERE

Q5 (ii) [1.5 marks] A senior executive claims that advance machine learning models should replace

all the components of the fraud detection system as they lead to higher profitability. Do you agree

or disagree with the executive? Justify your answer. [Word limit < 150 words]

Note Write your justification in the Markdown cell below

You can use Markdown syntax here.

WRITE YOUR ANSWER(S) HERE IN THIS CELL

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