Basically, SVM wants to find the optimal hyperplane that splits the datapoints in such way that the margin between the closest datapoints of each class (the so-called support vectors) is maximized. This all breaks down to the following Lagrangian optimization problem:
w:vector that determines the optimum hyperplane ( for intuition, make yourself familiar with the geometrical meaning of a dot product)
(w^T?x_i+b) is a scalar and displays the geometrical distance
between single datapoint x_i and the maximum margin hyperplane
b is a bias vector ( I think it comes from indetermined integral in
derivation of SVM) more on that you can find here: University Stanford -Computer Science Lecture 3-SVM
λ_i the Lagrangian multiplier
y_i the normalized classification boundary
Solving the optimization problem leads to all necessary parameters of w, b, and lambda.
To answer you quesiton in one sentence: The class boundaries [-1,1] are set arbitrarily. It is really just definition.
The labels of your binary data [0;1] (so-called dummy varaibles) have nothing to with the boundaries. It is just a convenient way to label binary data. The labels are only needed to link the features to its corresponding class or category.
The only non paramter in Formula (8) is x_i , your datapoint in feature space.
At least thats how I understand SVM. Feel free to correct me if I am wrong or unprecise.
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