Dynamic Estimation of Credit Rating Transition Probabilities

2009/12/23 by Arthur M. Berd, Berd, Arthur M.
Economics, Econometrics and Finance · #FOS: Economics and business #Risk Management (q-fin.RM) #Statistical Finance (q-fin.ST) #q-fin.RM #q-fin.ST

paper · pdf · doi:10.48550/arxiv.0912.4621

28 pages, 23 figures

arxiv created 2009/12/23 · arxiv updated 2010/01/14

Abstract

We present a continuous-time maximum likelihood estimation methodology for credit rating transition probabilities, taking into account the presence of censored data. We perform rolling estimates of the transition matrices with exponential time weighting with varying horizons and discuss the underlying dynamics of transition generator matrices in the long-term and short-term estimation horizons.

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