Smooth estimation of rating transitions by nearest neighbors
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Date
2011-01-18
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Abstract
Many types of duration data suffer both from left-truncation and right-censoring.
We show how these deficiencies can be overcome at the same time when estimating the hazard rate nonparametrically by kernel smoothing with the nearest neighbor method. We infer the uniform consistency of
the estimate from the Hoeffding inequality, applied to a generalized empirical
distribution function. Finally, we apply our estimator to rating transitions
of corporate loans in Germany. JEL numbers; C14, C13, C24, C41, G24, G12
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Keywords
Hazard rate, Kernel smoothing, Left-truncation, Right-censoring