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Credit portfolio risk and probability of default confidence sets through the business cycle

Please use this identifier to cite or link to this item: http://hdl.handle.net/1959.14/152944

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Title: Credit portfolio risk and probability of default confidence sets through the business cycle
Related: The Journal of credit risk, Vol. 1, No. 4, (2005), p.61-88
Publisher: London, UK : Inclusive Media
Date: 2005
FoR/RFCD Code(s): 150200 Banking, Finance and Investment
Author/Creator: Trück, Stefan
Author/Creator: Rachev, Svetlozar T
Description: Transition matrices are an important determinant in risk management and VAR calculations for credit portfolios. It is well known that rating migration behavior is not constant through time in that it shows cyclicality and significant change over the years. We investigate the effect of changes in migration matrices on credit portfolio risk in terms of expected loss and value-at-risk figures for illustrative loan portfolios. The estimates are based on historical transition matrices for different time horizons and a continuous-time simulation procedure. We further determine confidence sets for the probability of default (PD) in different rating classes by a bootstrapping methodology. Our findings are that there are substantial changes in VAR as well as in the width of estimated PD confidence intervals.
Description: 28 page(s)
Subject Keyword: 150200 Banking, Finance and Investment
Subject Keyword: transition matrices
Subject Keyword: VAR
Subject Keyword: credit portfolios
Subject Keyword: migration matrices
Subject Keyword: value-at-risk
Subject Keyword: loan portfolios
Subject Keyword: PD
Subject Keyword: probability default
Subject Keyword: bootstrapping
Resource Type: journal article
Organisation: Macquarie University. Dept. of Economics

Identifier: http://hdl.handle.net/1959.14/152944
Identifier: ISSN:1744-6619
Identifier: mq-rm-2009000288
Language: eng
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