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Please use this identifier to cite or link to this item: http://hdl.handle.net/1959.14/136088
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- Title
- On a multivariate Markov chain model for credit risk measurement
- Related
- Quantitative finance, Vol. 5, No. 6, (2005), p.543-556
- DOI
- 10.1080/14697680500383714
- Publisher
- Routledge
- Date
- 2005
- Author/Creator
- Siu, Tak-Kuen
- Author/Creator
- Ching, Wai-Ki
- Author/Creator
- Fung, Eric S
- Author/Creator
- Ng, Micheal K
- Description
- In this paper, we use credibility theory to estimate credit transition matrices in a multivariate Markov chain model for credit rating. A transition matrix is estimated by a linear combination of the prior estimate of the transition matrix and the empirical transition matrix. These estimates can be easily computed by solving a set of linear programming (LP) problems. The estimation procedure can be implemented easily on Excel spreadsheets without requiring much computational effort and time. The number of parameters is O(s² m² ), where s is the dimension of the categorical time series for credit ratings and m is the number of possible credit ratings for a security. Numerical evaluations of credit risk measures based on our model are presented.
- Description
- 14 page(s)
- Subject Keyword
- 150200 Banking, Finance and Investment
- Subject Keyword
- 010200 Applied Mathematics
- Subject Keyword
- correlated credit migrations
- Subject Keyword
- linear programming
- Subject Keyword
- transition matrices
- Subject Keyword
- credibility theory
- Resource Type
- journal article
- Organisation
- Macquarie University. Dept. of Applied Finance and Actuarial Studies
- Identifier
- http://hdl.handle.net/1959.14/136088
- Identifier
- ISSN:1469-7688
- Identifier
- mq-rm-2009000349
- Language
- eng
- Reviewed
Macquarie University ResearchOnline
