Estimation of transition probabilities of credit ratings for several companies

Gan, Chew Peng * and Pooi, Ah Hin * (2016) Estimation of transition probabilities of credit ratings for several companies. AIP Conference Proceedings, 1782 (050007). pp. 1-5. ISSN 1551 7616

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This paper attempts to estimate the transition probabilities of credit ratings for a number of companies whose ratings have a dependence structure. Binary codes are used to represent the index of a company together with its ratings in the present and next quarters. We initially fit the data on the vector of binary codes with a multivariate power-normal distribution. We next compute the multivariate conditional distribution for the binary codes of rating in the next quarter when the index of the company and binary codes of the company in the present quarter are given. From the conditional distribution, we compute the transition probabilities of the company’s credit ratings in two consecutive quarters. The resulting transition probabilities tally fairly well with the maximum likelihood estimates for the time-independent transition probabilities.

Item Type: Article
Additional Information: 4th International Conference on Quantitative Sciences and Its Applications (ICOQSIA 2016)
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Divisions: Sunway University > School of Mathematical Sciences > Department of Actuarial Science and Risk
Depositing User: Dr Janaki Sinnasamy
Related URLs:
Date Deposited: 21 Dec 2016 03:19
Last Modified: 31 May 2019 04:42

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