RT Journal Article
SR Electronic
T1 A Density-Dependent Model for Credit Ratings Migration Dynamics
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 26
OP 37
DO 10.3905/jfi.2007.688963
VO 17
IS 1
A1 Dror Parnes
YR 2007
UL https://pm-research.com/content/17/1/26.abstract
AB This study examines an alternative approach for simulating credit ratings migration by associating firm's survivability and transitivity to a valuable economic parameter; the market- density. The article contrasts several known methodologies over the S&P long-term credit ratings from 1985 to 2004, and authenticates that the density-dependent model is the most realistic scheme. The proposed model statistically and economically dominates the homogeneous Markov chain process, the stochastic business-cycles notion, as well as the momentum technique in describing credit rating transitions. Its main advantages rely upon simplicity of deployment, and its improved ability to track observed default patterns.TOPICS: Fixed income and structured finance, simulations, credit risk management