Dynamic Estimation of Credit Rating Transition Probabilities

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 underlyi...

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Bibliographic Details
Published in:arXiv.org 2009-12
Main Author: Berd, Arthur M
Format: Article
Language:English
Subjects:
Economic models
Markov analysis
Maximum likelihood estimation
Transition probabilities
Online Access:Get full text
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Summary: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.
ISSN:2331-8422