Python for Finance Cookbook

How to do it...

Execute the following steps to encode categorical variables.

1. Import the libraries:

import pandas as pdfrom sklearn.preprocessing import LabelEncoder, OneHotEncoderfrom sklearn.compose import ColumnTransformer

2. Use Label Encoder to encode a selected column:

COL = 'education'X_train_copy = X_train.copy()X_test_copy = X_test.copy()label_enc = LabelEncoder()label_enc.fit(X_train_copy[COL])X_train_copy.loc[:, COL] = label_enc.transform(X_train_copy[COL])X_test_copy.loc[:, COL] = label_enc.transform(X_test_copy[COL])

We created a copy of X_train and X_test, just to show how to work with LabelEncoder, but we do not want to modify the DataFrames.

3. Select categorical features for one-hot encoding:

CAT_FEATURES = X_train.select_dtypes ...