2014/03/31 by Pedro Lencastre, Frank Raischel, Lencastre, Pedro +5
Business, Management and Accounting · Economics, Econometrics and Finance · #Credit Risk and Financial Regulations #FOS: Economics and business #Financial Distress and Bankruptcy Prediction #Insurance and Financial Risk Management #Risk Management (q-fin.RM) #Statistical Finance (q-fin.ST) #q-fin.RM #q-fin.ST
paper · pdf · doi:10.48550/arxiv.1403.8018
11 pages, Fig 5, for 2014 conference
openalex publication_date 2014/03/31 · arxiv created 2014/10/29 · arxiv updated 2014/10/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We introduce a simple approach for testing the reliability of homogeneous generators and the Markov property of the stochastic processes underlying empirical time series of credit ratings. We analyze open access data provided by Moody's and show that the validity of these assumptions - existence of a homogeneous generator and Markovianity - is not always guaranteed. Our analysis is based on a comparison between empirical transition matrices aggregated over fixed time windows and candidate transition matrices generated from measurements taken over shorter periods. Ratings are widely used in credit risk, and are a key element in risk assessment; our results provide a tool for quantifying confidence in predictions extrapolated from these time series.