Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/bdr/borrec/478.html
   My bibliography  Save this paper

An Alternative Methodology for Estimating Credit Quality Transition Matrices

Author

Listed:
  • Jose E. Gómez
  • Paola Morales
  • Fernando Pineda
  • nzamudgo@banrep.gov.co
Abstract
This study presents an alternative way of estimating credit transition matrices using a hazard function model. The model is useful both for testing the validity of the Markovian assumption, frequently made in credit rating applications, and also for estimating transition matrices conditioning on firm-specific and macroeconomic covariates that influence the migration process. The model presented in the paper is likely to be useful in other applications, though we would hesitate to extrapolate numerical values of coefficients outside of our application. Transition matrices estimated this way may be an important tool for a credit risk administration system, in the sense that with them a practitioner can easily forecast the behavior of the clients´ratings in the future and their possible changes of state

Suggested Citation

  • Jose E. Gómez & Paola Morales & Fernando Pineda & nzamudgo@banrep.gov.co, 2007. "An Alternative Methodology for Estimating Credit Quality Transition Matrices," Borradores de Economia 478, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:478
    DOI: 10.32468/be.478
    as

    Download full text from publisher

    File URL: https://doi.org/10.32468/be.478
    Download Restriction: no
    File URL: https://libkey.io/10.32468/be.478?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mahlmann, Thomas, 2006. "Estimation of rating class transition probabilities with incomplete data," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3235-3256, November.
    2. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-679, June.
    3. José E. Gómez-González & Nicholas M. Kiefer., 2009. "Evidence of Non-Markovian Behavior in the Process of Bank Rating Migrations," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 46(133), pages 33-50.
    4. José E. Gómez-Gonzalez & Nicholas M. Kiefer, 2009. "Bank Failure: Evidence From The Colombian Financial Crisis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(2), pages 15-31.
    5. Kiefer, Nicholas M. & Larson, C. Erik, 2007. "A simulation estimator for testing the time homogeneity of credit rating transitions," Journal of Empirical Finance, Elsevier, vol. 14(5), pages 818-835, December.
    6. Bangia, Anil & Diebold, Francis X. & Kronimus, Andre & Schagen, Christian & Schuermann, Til, 2002. "Ratings migration and the business cycle, with application to credit portfolio stress testing," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 445-474, March.
    7. Audretsch, David B & Mahmood, Talat, 1995. "New Firm Survival: New Results Using a Hazard Function," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 97-103, February.
    8. Lando, David & Skodeberg, Torben M., 2002. "Analyzing rating transitions and rating drift with continuous observations," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 423-444, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Correa, Arnildo & Marins, Jaqueline & Neves, Myrian & da Silva, Antonio Carlos, 2014. "Credit Default and Business Cycles: An Empirical Investigation of Brazilian Retail Loans," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 68(3), September.
    2. Ángela González Arbeláez, 2010. "Determinantes del riesgo del crédito comercial en Colombia," Vniversitas Económica, Universidad Javeriana - Bogotá, vol. 0(0), pages 1-69, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. José E. Gómez-González & Nicholas M. Kiefer., 2009. "Evidence of Non-Markovian Behavior in the Process of Bank Rating Migrations," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 46(133), pages 33-50.
    2. Dimitris Gavalas & Theodore Syriopoulos, 2014. "Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle," IJFS, MDPI, vol. 2(1), pages 1-22, March.
    3. Schechtman, Ricardo, 2013. "Default matrices: A complete measurement of banks’ consumer credit delinquency," Journal of Financial Stability, Elsevier, vol. 9(4), pages 460-474.
    4. Weißbach, Rafael & Mollenhauer, Thomas, 2011. "Modelling Rating Transitions," VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48698, Verein für Socialpolitik / German Economic Association.
    5. Weißbach, Rafael & Walter, Ronja, 2010. "A likelihood ratio test for stationarity of rating transitions," Journal of Econometrics, Elsevier, vol. 155(2), pages 188-194, April.
    6. Frydman, Halina & Schuermann, Til, 2008. "Credit rating dynamics and Markov mixture models," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1062-1075, June.
    7. Gómez-González, José Eduardo & Hinojosa, Inés Paola Orozco, 2010. "Estimation of conditional time-homogeneous credit quality transition matrices," Economic Modelling, Elsevier, vol. 27(1), pages 89-96, January.
    8. Camilla Ferretti & Giampaolo Gabbi & Piero Ganugi & Federica Sist & Pietro Vozzella, 2019. "Credit Risk Migration and Economic Cycles," Risks, MDPI, vol. 7(4), pages 1-18, October.
    9. Weißbach, Rafael & Walter, Ronja, 2008. "A likelihood ratio test for stationarity of rating transitions," Technical Reports 2008,27, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
    10. Güttler, André & Raupach, Peter, 2008. "The impact of downward rating momentum on credit portfolio risk," Discussion Paper Series 2: Banking and Financial Studies 2008,16, Deutsche Bundesbank.
    11. Pesaran, M. Hashem & Schuermann, Til & Treutler, Bjorn-Jakob & Weiner, Scott M., 2006. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1211-1261, August.
    12. Agustí Segarra & Maria Callejón, 2002. "New Firms' Survival and Market Turbulence: New Evidence from Spain," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(1), pages 1-14, February.
    13. José Eduardo Gómez González & Ines Paola Orozco Hinojosa, 2010. "Un modelo de alerta temprana para el sistema financiero colombiano," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 28(62), pages 124-147, June.
    14. Yang, Qing Gong & Temple, Paul, 2012. "Reform and competitive selection in China: An analysis of firm exits," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 286-299.
    15. Trueck, Stefan & Rachev, Svetlozar T., 2008. "Rating Based Modeling of Credit Risk," Elsevier Monographs, Elsevier, edition 1, number 9780123736833.
    16. Correa, Arnildo & Marins, Jaqueline & Neves, Myrian & da Silva, Antonio Carlos, 2014. "Credit Default and Business Cycles: An Empirical Investigation of Brazilian Retail Loans," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 68(3), September.
    17. Figlewski, Stephen & Frydman, Halina & Liang, Weijian, 2012. "Modeling the effect of macroeconomic factors on corporate default and credit rating transitions," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 87-105.
    18. Marcus Asplund & Rickard Sandin, 1999. "The Survival of New Products," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(3), pages 219-237, November.
    19. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 129-162, April.
    20. Georges Dionne & Geneviève Gauthier & Khemais Hammami & Mathieu Maurice & Jean‐Guy Simonato, 2010. "Default Risk in Corporate Yield Spreads," Financial Management, Financial Management Association International, vol. 39(2), pages 707-731, June.

    More about this item

    Keywords

    Firms; macroeconomic variables; firm-specific covariates; hazard function; transition intensities.;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdr:borrec:478. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Clorith Angélica Bahos Olivera (email available below). General contact details of provider: https://edirc.repec.org/data/brcgvco.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.