Authors: | Lawrenz, Claudia Tschiersch, Patrick Weißbach, Rafael |
Title: | Testing Homogeneity of Time-Continuous Rating Transitions |
Language (ISO): | en |
Abstract: | Banks could achieve substantial improvements of their portfolio credit risk assessment by estimating rating transition matrices within a time-continuous Markov model, thereby using continuous-time rating transitions provided by internal rating systems instead of discrete-time rating information. A non-parametric test for the hypothesis of time-homogeneity is developed. The alternative hypothesis is multiple structural change of transition intensities, i.e. time-varying transition probabilities. The partial-likelihood ratio for the multivariate counting process of rating transitions is shown to be asymptotically c2 -distributed. A Monte Carlo simulation finds both size and power to be adequate for our example. We analyze transitions in credit-ratings in a rating system with 8 rating states and 2743 transitions for 3699 obligors observed over seven years. The test rejects the homogeneity hypothesis at all conventional levels of significance. |
Subject Headings: | Markov model partial likelihood Portfolio credit risk Rating transitions time-homogeneity |
URI: | http://hdl.handle.net/2003/21638 http://dx.doi.org/10.17877/DE290R-14496 |
Issue Date: | 2005-10-11T14:37:40Z |
Appears in Collections: | Sonderforschungsbereich (SFB) 475 |
Files in This Item:
File | Description | Size | Format | |
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tr34-05.pdf | DNB | 237.62 kB | Adobe PDF | View/Open |
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