A Density-Dependent Model for Credit Ratings Migration Dynamics

The credit rating process and estimation of transition probabilities: A Bayesian approach

“…The effect β AAA of the unobserved macroeconomic shock on credit class AAA is not statistically significant, implying that this credit class is not sensitive to unanticipated changes in the economy. McNeil and Wendin (2006) reach similar insights about the AAA rating class, consistent also with results reported in Altman and Kao (1992b) and Parnes (2007) on the stability of AAA ratings. The effect of the unobserved shock β ζ is generally larger for speculative grade than for investment grade classes.…”

Time series patterns in credit ratings

“…The generator matrix investigated by Israel et al (2001) offers procedures to simulate further transition matrices. Bangia et al (2002) distinguish between transition matrices depending on the business cycle, and the density-dependent model of Parnes (2007) associates firm's survivability and transitivity to the market-density. These nonhomogeneous models consider the credit ratings migration not to be a memory-less process any more.…”