Kolmogorov–Smirnov‐type testing for the partial homogeneity of Markov processes—with application to credit risk

Weißbach, Rafael; Dette, Holger

doi:10.1002/asmb.667

Cited by 11 publications

(5 citation statements)

References 17 publications

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“…For a sample size as large as n = 10000, the convex-shaped intensity was associated with a type II error of 0.487, for the concave intensity the error was even 0.918. In a simplified situation, Weißbach and Dette (2007) propose a globally consistent test that detects any alternative. From a practical point of view, this deficiency is accounted for here, by processing our test on different partitions.…”

Section: Applicationmentioning

confidence: 99%

A likelihood ratio test for stationarity of rating transitions

Weißbach

Walter

2010

Journal of Econometrics

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"We study the time-stationarity of rating transitions, modelled by a time-continuous discrete-state Markov process and derive a likelihood ratio test. For multiple Markov processes from a multiplicative intensity model, maximum likelihood parameter estimates can be written as martingale transform of the processes, counting transitions between the rating states, so that the profile partial likelihood ratio is asymptotically χ2-distributed. An application to an internal rating data set reveals highly significant instationarity." [author's abstract

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Section: Applicationmentioning

confidence: 99%

A likelihood ratio test for stationarity of rating transitions

Weißbach

Walter

2010

Journal of Econometrics

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“…In analysing longitudinal data using Markov models some classical tests of homogeneity of transition probabilities are used, (Weißbach and Dette, 2007;Schweinberger, 2012). In this paper we propose a Bayesian test of homogeneity of transition probabilities in longitudinal ordinal response data with random dropout.…”

Section: Introductionmentioning

confidence: 99%

Bayesian Test of Homogeneity in Transition Model for Longitudinal Ordinal Response Data with Missing Values

Noorian¹,

Ganjali²

2013

JSTA

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For analyzing longitudinal ordinal response data, many methods are available to take into account the correlations between responses of the same individual where different methods use different approaches. One of the methods to consider this correlation is the transition (Markov) model. In this paper, we present a Bayesian test of homogeneity of a transition model for analyzing longitudinal ordinal response data.In other words we test whether the transition probabilities π mabt 's, which are probabilities of moving to state b from state a of m th individual at time t, are the same for any given time t, i.e., π mabt = π mab . A cumulative logistic regression model and the Bayesian method, using MCMC, are implemented for testing the null hypothesis of homogeneity. We also define what a specific homogeneous covariate is. Our approach is applied on three-period longitudinal Fluvoxamine (a treatment for deregulation of serotonin in brain) data.

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“…Modeling rating transition as a Markov chain process implies that default is considered to be an absorbing state, that is, in the long-term all assets are in default. Past studies based on external rating data and up to two-year forecasts, postulate that credit rating dynamics can be adequately modeled as a Markov chain [32,41]. Furthermore, the incorporation of discrete-time approaches rather than of continuous-time duration models with time-homogeneity is argued to be ambivalent in terms of loss efficiency in cohort data analysis.…”

Section: Time-homogeneitymentioning

confidence: 99%

Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle

Gavalas

Syriopoulos

2014

IJFS

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Abstract:Credit risk measurement remains a critical field of top priority in banking finance, directly implicated in the recent global financial crisis. This paper examines the dynamic linkages between credit risk migration due to rating shifts and prevailing macroeconomic conditions, reflected in alternative business cycle states. An innovative empirical methodology applies to bank internal rating data, under different economic scenarios and investigates the implications of credit risk quality shifts for risk rating transition matrices. The empirical findings are useful and critical for banks to align to Basel guidelines in relation to core capital requirements and risk-weighted assets in the underlying loan portfolio.

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Kolmogorov–Smirnov‐type testing for the partial homogeneity of Markov processes—with application to credit risk

Cited by 11 publications

References 17 publications

A likelihood ratio test for stationarity of rating transitions

A likelihood ratio test for stationarity of rating transitions

Bayesian Test of Homogeneity in Transition Model for Longitudinal Ordinal Response Data with Missing Values

Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle

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