Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/22624
Authors: 
Lawrenz, Claudia
Tschiersch, Patrick
Weißbach, Rafael
Year of Publication: 
2005
Series/Report no.: 
Technical Report / Universität Dortmund, SFB 475 Komplexitätsreduktion in Multivariaten Datenstrukturen 2005,34
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.
Subjects: 
Portfolio credit risk
Rating transitions
Markov model
time-homogeneity
partial likelihood
JEL: 
G33
G18
G11
C51
Document Type: 
Working Paper

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