A hybrid approach using case-based reasoning and fuzzy logic for corporate bond rating

Abstract

This study investigates the effectiveness of a hybrid approach using fuzzy sets that describe approximate phenomena of the real world. Compared to the other existing techniques, the approach handles inexact knowledge in common linguistic terms as human reasoning does it. Integration of fuzzy sets with case-based reasoning (CBR) is important in that it helps to develop a successful system for dealing with vague and incomplete knowledge which statistically uses membership value of fuzzy sets in CBR. The preliminary results show that the accuracy of the integrated fuzzy-CBR approach proposed for this study is higher that that of conventional techniques. Our proposed approach is applied to corporate bond rating of Korean companies.