Resource title

A Coupled Markov Chain Approach to Credit Risk Modeling

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Resource description

We propose a Markov chain model for credit rating changes. We do not use any distributional assumptions on the asset values of the rated companies but directly model the rating transitions process. The parameters of the model are estimated by a maximum likelihood approach using historical rating transitions and heuristic global optimization techniques. We benchmark the model against a GLMM model in the context of bond portfolio risk management. The proposed model yields stronger dependencies and higher risks than the GLMM model. As a result, the risk optimal portfolios are more conservative than the decisions resulting from the benchmark model. (author's abstract)

Resource author

David Wozabal, Ronald Hochreiter

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Resource publish date

Resource language

en

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application/pdf

Resource resource URL

http://epub.wu.ac.at/3476/1/wozabalhochreiter2012%2Dplain.pdf

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