EXECUTIVE SUMMARY

In business scenarios, majority of the predictor (independent) variables are either integer, continuous or
categorical, while the output (response) variable is either binary (yes/no, admit/don’t admit,
fraudulent/non-fraudulent) or multinomial. Some of these scenarios are (1) which graduate subject will
a student choose, given his/her grades, stated likes & dislikes, (2) which candidate will a person vote for,
given relevant demographic characteristics, (3) Which country will a firm locate an office in, given the
characteristics of the firm and of the various candidate countries. The limitation of simple or multiple
linear regressions is that it will work for only continuous predictor & response variables. Logistic
regression model can predict binary outputs. It has applications in almost every business & academic
set-ups. BFSI sector heavily uses logistic regression models to predict the approval or rejection of loans,
based on credit score & also fraudulent or authentic transactions. This particular report is about
predicting the probability of fraudulent and authentic credit card transactions for Indian card-holders.
Binary Logistic regression model is used to predict the results because the output is dichotomous in R.

CONCLUSION
The accuracy of the model depends on how well the training data is balanced. The Accuracy, Sensitivity
& Specificity have improved significantly after three iterations in the Confusion Matrix. Whether the
model is a good fit depends on these three values in continuum instead of looking at them in silo. There
are multiple balancing techniques. The 1st balancing technique, ROSE (Random Over-Sampling Example)
was run by generating synthetic balanced samples in the 1st iteration. The 2nd balancing technique,
SMOTE (Synthetic Minority Oversampling Technique Example) was run by oversampling data using
nearest neighbors in the 2nd iteration. The 3rd & last balancing technique, UBUnder (Under-sampling)
was run by under-sampling data using nearest neighbors.