An Alternative Methodology for Estimating Credit Quality Transition Matrices
AbstractThis study presents an alternative way of estimating credit transition matrices using a hazard function model. The model is useful both for testing the validity of the Markovian assumption, frequently made in credit rating applications, and also for estimating transition matrices conditioning on firm-specific and macroeconomic covariates that influence the migration process. The model presented in the paper is likely to be useful in other applications, though we would hesitate to extrapolate numerical values of coefficients outside of our application. Transition matrices estimated this way may be an important tool for a credit risk administration system, in the sense that with them a practitioner can easily forecast the behavior of the clients´ratings in the future and their possible changes of state
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 478.
Date of creation:
Date of revision:
Firms; macroeconomic variables; firm-specific covariates; hazard function; transition intensities. Classification JEL: C4; E44; G21; G23; G38.;
Other versions of this item:
- Jose Eduardo Gómez & Paola Morales Acevedo & Fernando Pineda & Nancy Zamudio, 2007. "An Alternative Methodology for Estimating Credit Quality Transition Matrices," BORRADORES DE ECONOMIA 004395, BANCO DE LA REPÚBLICA.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- José E. Gómez-González & Nicholas M. Kiefer., 2009.
"Evidence of Non-Markovian Behavior in the Process of Bank Rating Migrations,"
Latin American Journal of Economics-formerly Cuadernos de Economía,
Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 46(133), pages 33-50.
- José E.Gómez González & Nicholas M. Kiefer, . "Evidence of non-Markovian behavior in the process of bank rating migrations," Borradores de Economia 448, Banco de la Republica de Colombia.
- José E. Gómez-Gonzalez & Nicholas M. Kiefer, 2007. "Evidence of non-Markovian behavior in the process of bank rating migrations," BORRADORES DE ECONOMIA 003961, BANCO DE LA REPÚBLICA.
- José E. Gómez González & Nicholas M. Kiefer, 2007. "Evidence of non-Markovian behavior in the process of bank rating migrations," BORRADORES DE ECONOMIA 004016, BANCO DE LA REPÚBLICA.
- Lando, David & Skodeberg, Torben M., 2002. "Analyzing rating transitions and rating drift with continuous observations," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 423-444, March.
- Mahlmann, Thomas, 2006. "Estimation of rating class transition probabilities with incomplete data," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3235-3256, November.
- Kiefer, Nicholas M. & Larson, C. Erik, 2007.
"A simulation estimator for testing the time homogeneity of credit rating transitions,"
Journal of Empirical Finance,
Elsevier, vol. 14(5), pages 818-835, December.
- Kiefer, Nicholas M. & Larson, C. Erik, 2006. "A Simulation Estimator for Testing the Time Homogeneity of Credit Rating Transition," Working Papers 06-10, Cornell University, Center for Analytic Economics.
- Anil Bangia & Francis X. Diebold & Til Schuermann, 2000.
"Ratings Migration and the Business Cycle, With Application to Credit Portfolio Stress Testing,"
Center for Financial Institutions Working Papers
00-26, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Bangia, Anil & Diebold, Francis X. & Kronimus, Andre & Schagen, Christian & Schuermann, Til, 2002. "Ratings migration and the business cycle, with application to credit portfolio stress testing," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 445-474, March.
- Audretsch, David B & Mahmood, Talat, 1995. "New Firm Survival: New Results Using a Hazard Function," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 97-103, February.
- Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
- Gomez-Gonzalez, Jose E. & Kiefer, Nicholas M., 2006. "Bank Failure: Evidence from the Colombia Financial Crisis," Working Papers 06-12, Cornell University, Center for Analytic Economics.
- Ángela González Arbeláez, 2010.
"Determinantes del riesgo del crédito comercial en Colombia,"
008215, UNIVERSIDAD JAVERIANA - BOGOTÁ.
- Angela González Arbeláez, . "Determinantes del riesgo de crédito comercial en Colombia," Temas de Estabilidad Financiera 045, Banco de la Republica de Colombia.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Camilo Millán).
If references are entirely missing, you can add them using this form.