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Rating philosophies: some clarifications

Author

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  • Varsanyi, Zoltan

Abstract

In 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.

Suggested Citation

  • Varsanyi, Zoltan, 2007. "Rating philosophies: some clarifications," MPRA Paper 1660, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1660
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    File URL: https://mpra.ub.uni-muenchen.de/1660/1/MPRA_paper_1660.pdf
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    File URL: https://mpra.ub.uni-muenchen.de/1733/1/MPRA_paper_1733.pdf
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    Citations

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    Cited by:

    1. Pedro Lencastre & Frank Raischel & Pedro G. Lind & Tim Rogers, 2014. "Are credit ratings time-homogeneous and Markov?," Papers 1403.8018, arXiv.org, revised Oct 2014.

    More about this item

    Keywords

    rating model; rating philosophy; stress test; pro-cyclicality;

    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

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