Rating philosophies: some clarifications
AbstractIn this paper I try to give answers to some of the questions and problems that arise in relation to point in time (PIT) and through the cycle (TTC) rating philosophies. One of the most confusing of these is the definition of the two approaches that, as I argue, should be based on the scope of information behind the systems. Through a simple model I demonstrate that the results of quantitative analyses can be very sensitive to the definitions and, additionally, the stress concept applied. I analyze the role played by the rating philosophies in capital requirements calculations and stress tests, and touch on their implications on the pro-cyclicality of credit risk capital regulation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 1660.
Date of creation: Jan 2007
Date of revision:
rating model; rating philosophy; stress test; pro-cyclicality;
Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-10 (All new papers)
- NEP-HPE-2007-02-10 (History & Philosophy of Economics)
- NEP-RMG-2007-02-10 (Risk Management)
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- Pedro Lencastre & Frank Raischel & Pedro G. Lind & Tim Rogers, 2014. "Are credit ratings time-homogeneous and Markov?," Papers 1403.8018, arXiv.org.
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