Adjustment and Application of Transition Matrices in Credit Risk Models
27 Pages Posted: 30 Mar 2005
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
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