Christensen, Jens, Ernst Hansen, and David Lando, "Confidence Sets for Continuous-time Rating Transition Probabilities", Journal of Banking & Finance, Vol. 28, No. 11, (November 2004), pp. 2575-2602.

Abstract: This paper addresses the estimation of default probabilities and associated confidence sets with special focus on rare events. Research on rating transition data has documented a tendency for recently downgraded issuers to be at an increased risk of experiencing further downgrades compared to issuers that have held the same rating for a longer period of time. To capture this non-Markov effect we introduce a continuous-time hidden Markov chain model in which downgrades firms enter into a hidden, 'excited' state. Using data from Moody's we estimate the parameters of the model, and conclude that both default probabilities and confidence sets are strongly influenced by the introduction of hidden excited states.

Books Referenced in this Paper:  (what is this?)

[Home] [Other Credit Risk Papers]

[ Home ]

Please contact me with problems or suggestions.
Copyright © 2000-2008 DefaultRisk.com
Last modified: July 02, 2008