Adjustment and Application of Transition Matrices in Credit Risk Models

27 Pages Posted: 30 Mar 2005

See all articles by Stefan Trück

Stefan Trück

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR); Macquarie University, Macquarie Business School

Oezturkmen Emrah

University of Karlsruhe - Institute of Statistics and Mathematical Economics

Date Written: September 2003

Abstract

The paper gives a survey on recent developments on the use of numerical methods in rating based Credit Risk Models. Generally such models use transition matrices to describe probabilities from moving from one rating state to the other and to calculate Value-at-Risk figures for portfolios. We show how numerical methods can be used to find so-called true generator matrices in the continuous-time approach, adjust transition matrices or estimate confidence bounds for default and transition probabilities.

Keywords: Credit Risk, Transition Matrices, Rating Based Models

Suggested Citation

Trueck, Stefan and Emrah, Oezturkmen, Adjustment and Application of Transition Matrices in Credit Risk Models (September 2003). Available at SSRN: https://ssrn.com/abstract=675922 or http://dx.doi.org/10.2139/ssrn.675922

Stefan Trueck (Contact Author)

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies ( email )

North Ryde
Sydney, New South Wales 2109
Australia
61298508483 (Phone)
61298508483 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Oezturkmen Emrah

University of Karlsruhe - Institute of Statistics and Mathematical Economics ( email )

Building 20.21
76128 Karlsruhe
Germany

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