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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Official URL: http://dx.doi.org/10.1063/1.4966097

Abstract

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: Paper presented at the 4th International Conference on Quantitative Sciences and Its Applications (ICOQSIA 2016)
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HF Commerce
Divisions: Sunway University > Sunway University Business School > Centre for Actuarial Studies, Applied Finance & Statistics
Depositing User: Ms. Molly Chuah
Date Deposited: 08 Feb 2017 08:49
Last Modified: 08 Feb 2017 08:51
URI: http://eprints.sunway.edu.my/id/eprint/468

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