Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations

Detalhes bibliográficos
Autor(a) principal: dos Reis, Gonçalo
Data de Publicação: 2020
Outros Autores: Pfeuffer, M., Smith, Greig
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10362/120025
Resumo: UID/MAT/00297/2019 S020/10264/17 EP/L016508/01
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spelling Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrationsConfidence intervalsGenerator matrixMarkov chainPoint-processPrimary: 60G55Rating momentumSecondary: 62F15, 91G40FinanceEconomics, Econometrics and Finance(all)UID/MAT/00297/2019 S020/10264/17 EP/L016508/01We present two methodologies on the estimation of rating transition probabilities within Markov and non-Markov frameworks. We first estimate a continuous-time Markov chain using discrete (missing) data and derive a simpler expression for the Fisher information matrix, reducing the computational time needed for the Wald confidence interval by a factor of a half. We provide an efficient procedure for transferring such uncertainties from the generator matrix of the Markov chain to the corresponding rating migration probabilities and, crucially, default probabilities. For our second contribution, we assume access to the full (continuous) data set and propose a tractable and parsimonious self-exciting marked point processes model able to capture the non-Markovian effect of rating momentum. Compared to the Markov model, the non-Markov model yields higher probabilities of default in the investment grades, but also lower default probabilities in some speculative grades. Both findings agree with empirical observations and have clear practical implications. We use Moody's proprietary corporate credit rating data set. Parts of our implementation are available in the R package ctmcd.CMA - Centro de Matemática e AplicaçõesRUNdos Reis, GonçaloPfeuffer, M.Smith, Greig2021-06-25T22:18:32Z2020-07-022020-07-02T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/article15application/pdfhttp://hdl.handle.net/10362/120025eng1469-7688PURE: 32183371https://doi.org/10.1080/14697688.2020.1726439info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-03-11T05:02:40Zoai:run.unl.pt:10362/120025Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T03:44:16.419644Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations
title Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations
spellingShingle Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations
dos Reis, Gonçalo
Confidence intervals
Generator matrix
Markov chain
Point-process
Primary: 60G55
Rating momentum
Secondary: 62F15, 91G40
Finance
Economics, Econometrics and Finance(all)
title_short Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations
title_full Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations
title_fullStr Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations
title_full_unstemmed Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations
title_sort Capturing model risk and rating momentum in the estimation of probabilities of default and credit rating migrations
author dos Reis, Gonçalo
author_facet dos Reis, Gonçalo
Pfeuffer, M.
Smith, Greig
author_role author
author2 Pfeuffer, M.
Smith, Greig
author2_role author
author
dc.contributor.none.fl_str_mv CMA - Centro de Matemática e Aplicações
RUN
dc.contributor.author.fl_str_mv dos Reis, Gonçalo
Pfeuffer, M.
Smith, Greig
dc.subject.por.fl_str_mv Confidence intervals
Generator matrix
Markov chain
Point-process
Primary: 60G55
Rating momentum
Secondary: 62F15, 91G40
Finance
Economics, Econometrics and Finance(all)
topic Confidence intervals
Generator matrix
Markov chain
Point-process
Primary: 60G55
Rating momentum
Secondary: 62F15, 91G40
Finance
Economics, Econometrics and Finance(all)
description UID/MAT/00297/2019 S020/10264/17 EP/L016508/01
publishDate 2020
dc.date.none.fl_str_mv 2020-07-02
2020-07-02T00:00:00Z
2021-06-25T22:18:32Z
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
format article
status_str publishedVersion
dc.identifier.uri.fl_str_mv http://hdl.handle.net/10362/120025
url http://hdl.handle.net/10362/120025
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv 1469-7688
PURE: 32183371
https://doi.org/10.1080/14697688.2020.1726439
dc.rights.driver.fl_str_mv info:eu-repo/semantics/openAccess
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv 15
application/pdf
dc.source.none.fl_str_mv reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron:RCAAP
instname_str Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron_str RCAAP
institution RCAAP
reponame_str Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
collection Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
repository.name.fl_str_mv Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
repository.mail.fl_str_mv
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