Fraud detection is a critical challenge in various domains, necessitating accurate and reliable methods to distinguish between legitimate and fraudulent transactions. This work explores the application of copula-based models for anomaly detection in financial forensics. It focuses on their effectiveness in identifying fraudulent activities in a highly imbalanced dataset. Copula models are designed to capture the dependencies between continuous variables, providing a flexible framework for modeling the joint distribution of features. For instance, the variables in a dataset can follow different distributions and the copula is able to model how these variables jointly behave, particularly in extreme cases. In this work, we used a fraud dataset to calculate the copula-based probability of fraud and conditional Gaussian copula. Then, we derive the copula-based Generalized Linear Model (GLM) formula from the conditional copula which is essentially a GLM with probit link and transformed variables when the covariates are continuous. Finally, we compare the performance of these copula-based models with standard methods for predicting a binary variable like GLM with a probit link and logistic regression. Results indicate that copula-based probability and conditional copula formulas offer promising results, particularly in handling complex dependencies, but with a high computational time, while copula-based GLM, when combined with over-sampling, also outperforms traditional methods.

Copula-based Approaches for Anomaly Detection: a Case-study in Financial Forensics / V. Tenconi, D.A. Tamburri, G. Ennio Quattrocchi, C. Pellegrino, G. Cascavilla, W. Van Den Heuvel (... IEEE INTERNATIONAL CONFERENCE ON BIG DATA). - In: 2024 IEEE International Conference on Big Data (BigData)[s.l] : IEEE, 2024. - ISBN 979-8-3503-6249-7. - pp. 6670-6679 (( International Conference on Big Data, BigData 2024 Washington 2024 [10.1109/bigdata62323.2024.10825142].

Copula-based Approaches for Anomaly Detection: a Case-study in Financial Forensics

G. Ennio Quattrocchi;
2024

Abstract

Fraud detection is a critical challenge in various domains, necessitating accurate and reliable methods to distinguish between legitimate and fraudulent transactions. This work explores the application of copula-based models for anomaly detection in financial forensics. It focuses on their effectiveness in identifying fraudulent activities in a highly imbalanced dataset. Copula models are designed to capture the dependencies between continuous variables, providing a flexible framework for modeling the joint distribution of features. For instance, the variables in a dataset can follow different distributions and the copula is able to model how these variables jointly behave, particularly in extreme cases. In this work, we used a fraud dataset to calculate the copula-based probability of fraud and conditional Gaussian copula. Then, we derive the copula-based Generalized Linear Model (GLM) formula from the conditional copula which is essentially a GLM with probit link and transformed variables when the covariates are continuous. Finally, we compare the performance of these copula-based models with standard methods for predicting a binary variable like GLM with a probit link and logistic regression. Results indicate that copula-based probability and conditional copula formulas offer promising results, particularly in handling complex dependencies, but with a high computational time, while copula-based GLM, when combined with over-sampling, also outperforms traditional methods.
copula-based anomaly detection; fraud detection; generalized linear models; logistic regression
Settore INFO-01/A - Informatica
Settore IINF-05/A - Sistemi di elaborazione delle informazioni
2024
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/1227036
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