What does break point analysis mean in the context of fraud detection?

By: Bart Baesens, Seppe vanden Broucke

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You asked: What does break point analysis mean in the context of fraud detection?

Our answer:

Break point analysis is an intra-account fraud detection method. A break point indicates a sudden change in account behavior which merits further inspection. The method starts from defining a fixed time window.  This time window is then split into an old and new part. The old part represents the local model or profile against which the new observations will be compared. E.g., in (Bolton and Hand, 2002), the time window was set to 24 transactions whereby 20 transactions made up the local model, and 4 transactions were used for testing. A Student’s t-test can be used to compare the averages of the new and old parts. Observations can then be ranked according to their value of the t-statistic. This is illustrated in the figure below.

  • Bolton, R. J., & Hand, D. J. (2002). Statistical Fraud Detection: A Review. Statistical Science, 17(3), 235–249.