The ordered qualitative model for credit rating transitions
- 作者：D. Feng ; C. Gourieroux ; J. Jasiak
- 关键词：Credit rating ; Migration ; Migration correlation ; Credit risk ; Probit model ; Latent factor ; Business cycle
- 刊名：Journal of Empirical Finance
- 出版年：2008
- 期刊代码：40_09275398
- 类别：eco
- 出版时间：January 2008
- 卷：15
- 期：1
- 页码：111-130
- 文件大小：379 K
摘要
Information on the expected changes in credit quality of obligors is contained in credit migration matrices which trace out the movements of firms across ratings categories in a given period of time and in a given group of bond issuers. The rating matrices provided by Moody's, Standard & Poor's and Fitch became crucial inputs to many applications, including the assessment of risk on corporate credit portfolios (CreditVar) and credit derivatives pricing. We propose a factor probit model for modeling and prediction of credit rating matrices that are assumed to be stochastic and driven by a latent factor. The filtered latent factor path reveals the effect of the economic cycle on corporate credit ratings, and provides evidence in support of the PIT (point-in-time) rating philosophy. The factor probit model also yields the estimates of cross-sectional correlations in rating transitions that are documented empirically but not fully accounted for in the literature and in the regulatory rules established by the Basle Committee.