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Downward migration credit risk problem: A non-homogeneous backward semi-Markov reliability approach

par D'Amico, Guglielmo;Janssen, Jacques ;Manca, Raimondo
Référence Journal of the Operational Research Society, 67, 3, page (393-401)
Publication Publié, 2016-03

Article révisé par les pairs

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Résumé :

International organizations evaluate credit risk and rank firms according to risk by assigning them a 'rating'. The time evolution of a rating can be studied by means of Markov models. Some papers have outlined the problem pertaining to the unsuitable fitting of Markov processes in a credit risk environment. This paper presents a model that overcomes the problems given by the Markov rating models. It includes non-homogeneity, the downward problem and the randomness of time in the transitions of states, thus making it possible to consider the duration inside a state in a complete way. In this paper, both, the transient and asymptotic analyses are presented. The asymptotic analysis is performed by using a mono-unireducible topological structure. Moreover, a real data application is conducted using the historical database of Standard & Poor's as the source.