This is a classic class imbalance problem, where fraudulent transactions (minority class) are severely underrepresented. AWS documentation for SageMaker Data Wrangler recommends SMOTE (Synthetic Minority Oversampling Technique) as an effective approach for improving model performance in such scenarios.

SMOTE generates synthetic minority samples by interpolating between existing minority class examples. This improves the model’s ability to learn decision boundaries without simply duplicating data, which can cause overfitting.

Random undersampling removes valuable majority class data, reducing overall model robustness. Random oversampling duplicates data and increases overfitting risk. Changing algorithms does not address the root cause.

AWS best practices highlight SMOTE as the preferred technique for fraud detection and other highly imbalanced datasets.

Therefore, Option C is the correct and AWS-verified answer.