Abstract
The aim of this paper is to explain why cross-sectional estimated migration correlations displayed in the academic and professional literature can be either not consistent, or inefficient, and to discuss alternative approaches. The analysis relies on a model with stochastic migration in which the parameters of interest, that are migration correlations, are precisely defined. The impossibility of estimating consistently the migration correlations from cross-sectional data only is emphasized. We explain how to handle with individual rating histories, how to weight appropriately the cross-sectional estimators and how to estimate efficiently the joint migration probabilities at longer horizons.
| Original language | English |
|---|---|
| Pages (from-to) | 865-894 |
| Number of pages | 30 |
| Journal | Journal of Banking and Finance |
| Volume | 29 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - 1 Apr 2005 |
| Externally published | Yes |
Keywords
- Credit risk
- Migration
- Migration correlation
- Rating
- Stochastic transition