Stability of ratings transitions
AbstractThe distribution of ratings changes plays a crucial role in many credit risk models. As is well known, these distributions vary across time and different issuer types. Ignoring such dependencies may lead to inaccurate assessments of credit risk. In this paper, a quantification is provided of the dependence of ratings transition probabilities on the industry and domicile of the obligor, and on the stage of the business cycle. The incremental impact of these factors is identified using ordered probit models. This approach gives a clearer picture (than is obtained by comparing transition matrices estimated from different sub-samples) of which conditioning factors are important.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 133.
Date of creation: May 2001
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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.:
- Richard Cantor & Frank Packer, 1994. "The credit rating industry," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 1-26.
- Cheung, S., 1996. "Provincial Credit Rating in Canada: An Ordered Probit Analysis," Working Papers 96-6, Bank of Canada.
- Jean Helwege & Paul Kleiman, 1996. "Understanding aggregate default rates of high yield bonds," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue May.
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