Transfer Learning for Loan Recovery Prediction under Distribution Shifts with Heterogeneous Feature Spaces

Accurate forecasting of recovery rates (RR) is central to credit risk management and regulatory capital determination. In many loan portfolios, however, RR modeling is constrained by data scarcity arising from infrequent default events. Transfer learning (TL) offers a promising avenue to mitigate this challenge by exploiting information from related but richer source domains, yet its effectiveness critically depends on the presence and strength of distributional shifts, and on potential heterogeneity between source and target feature spaces. This paper introduces FT-MDN-Transformer, a mixture-density tabular Transformer architecture specifically designed for TL in RR forecasting across heterogeneous feature sets. The model produces both loan-level point estimates and portfolio-level predictive distributions, thereby supporting a wide range of practical RR forecasting applications. We evaluate the proposed approach in a controlled Monte Carlo simulation that facilitates systematic variation of covariate, conditional, and label shifts, as well as in a real-world transfer setting using the Global Credit Data (GCD) loan dataset as source and a novel bonds dataset as target. Our results show that FT-MDN-Transformer outperforms baseline models when target-domain data are limited, with particularly pronounced gains under covariate and conditional shifts, while label shift remains challenging. We also observe its probabilistic forecasts to closely track empirical recovery distributions, providing richer information than conventional point-prediction metrics alone. Overall, the findings highlight the potential of distribution-aware TL architectures to improve RR forecasting in data-scarce credit portfolios and offer practical insights for risk managers operating under heterogeneous data environments.

Neural Quantum Digital Twins for Optimizing Quantum Annealing

Quantum annealers have shown potential in addressing certain combinatorial optimization problems, though their performance is often limited by scalability and errors rates. In this work, we propose a Neural Quantum Digital Twin (NQDT) framework that reconstructs the energy landscape of quantum many-body systems relevant to quantum annealing. The digital twin models both ground and excited state dynamics, enabling detailed simulation of the adiabatic evolution process. We benchmark NQDT on systems with known analytical solutions and demonstrate that it accurately captures key quantum phenomena, including quantum criticality and phase transitions. Leveraging this framework, one can identify optimal annealing schedules that minimize excitation-related errors. These findings highlight the utility of neural network-based digital twins as a diagnostic and optimization tool for improving the performance of quantum annealers.