IDEAS home Printed from
   My bibliography  Save this paper

Modeling Rating Transition Matrices for Wholesale Loan Portfolios


  • Kit Baum

    (Boston College
    DIW Berlin)

  • Soner Tunay

    (Citizens Financial Group)

  • Alper Corlu

    (Citizens Financial Group)


Risk analysis of a commercial bank's wholesale loan portfolios involves modeling of the asset quality ratings of each borrower's obligations. This customarily involves transition matrices which capture the probability that a loan's AQ rating will migrate to a higher or lower rating, or transition to the default state. We compare and contrast three approaches for transition matrix modeling: the single factor approach commonly used in the financial industry, an approach based on time-series forecasts of default rates, and an approach based on modeling selected elements of the transition matrix which comprise the most likely outcomes. We find that these two unorthodox approaches both have excellent performance over a sample period encompassing the financial crisis.

Suggested Citation

  • Kit Baum & Soner Tunay & Alper Corlu, 2016. "Modeling Rating Transition Matrices for Wholesale Loan Portfolios," 2016 Stata Conference 17, Stata Users Group.
  • Handle: RePEc:boc:scon16:17

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boc:scon16:17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F Baum (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.