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An integrated multi-model credit rating system for private firms

  • Giovanni Butera

    ()

  • Robert Faff

    ()

This paper presents a integrated credit risk modelling approach for private firms which fulfil 2001 Basel Accord requirements in the case of the adoption of the foundation approach. Our model comprises: (a) a bottom-up technique to initially assess the through-the-cycle one-year Probability of Default (PD) and (b) a top-down approach to refine and calibrate this historical PD in a forward-looking credit risk assessment based on next year’s economic outlook. We present findings from applying this model to a large sample of client firms of the Bank of Rome. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11156-006-9434-7
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Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 27 (2006)
Issue (Month): 3 (November)
Pages: 311-340

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Handle: RePEc:kap:rqfnac:v:27:y:2006:i:3:p:311-340
Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=102990

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  1. Krahnen, Jan Pieter & Weber, Martin, 2000. "Generally accepted rating principles: A primer," CFS Working Paper Series 2000/02, Center for Financial Studies (CFS).
  2. Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-64, May.
  3. 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.
  4. Harald Benink & Clas Wihlborg, 2002. "The New Basel Capital Accord: Making it Effective with Stronger Market Discipline," European Financial Management, European Financial Management Association, vol. 8(1), pages 103-115.
  5. Crouhy, Michel & Galai, Dan & Mark, Robert, 2000. "A comparative analysis of current credit risk models," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 59-117, January.
  6. Burgstahler, David & Dichev, Ilia, 1997. "Earnings management to avoid earnings decreases and losses," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 99-126, December.
  7. Carey, Mark & Hrycay, Mark, 2001. "Parameterizing credit risk models with rating data," Journal of Banking & Finance, Elsevier, vol. 25(1), pages 197-270, January.
  8. Altman, Edward I. & Bharath, Sreedhar T. & Saunders, Anthony, 2002. "Credit ratings and the BIS capital adequacy reform agenda," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 909-921, May.
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