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Duration Models For Credit Rating Migration: Evidence From The Financial Crisis

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  • Myriam Ben Ayed
  • Adel Karaa
  • Jean‐Luc Prigent

Abstract

We introduce a specific duration model to analyze the prediction of the credit rating migration. We consider hazard rate processes based on multi‐state autoregressive conditional duration models. To take account of the economic context, we model the conditional mean of the duration between two ratings by means of a latent process. To this purpose, a dynamic‐ordered probit model is developed to describe the directions taken by the ratings in the presence of multiple states. As an illustration, we study the migration of credit rating during periods before and after the financial crisis. (JEL C14, C41, G24)

Suggested Citation

  • Myriam Ben Ayed & Adel Karaa & Jean‐Luc Prigent, 2018. "Duration Models For Credit Rating Migration: Evidence From The Financial Crisis," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1870-1886, July.
    • Handle: RePEc:bla:ecinqu:v:56:y:2018:i:3:p:1870-1886
    DOI: 10.1111/ecin.12561
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    References listed on IDEAS

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    1. Patrick Gagliardini, 2005. "Stochastic Migration Models with Application to Corporate Risk," Journal of Financial Econometrics, Oxford University Press, vol. 3(2), pages 188-226.
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    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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