A coupled Markov chain approach to credit risk modeling
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Publication:433652
DOI10.1016/J.JEDC.2011.09.011zbMATH Open1243.91101arXiv0911.3802OpenAlexW2073972024MaRDI QIDQ433652FDOQ433652
Ronald Hochreiter, David Wozabal
Publication date: 5 July 2012
Published in: Journal of Economic Dynamics and Control (Search for Journal in Brave)
Abstract: 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.
Full work available at URL: https://arxiv.org/abs/0911.3802
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Cited In (17)
- Dynamic hedging of portfolio credit risk in a Markov copula model
- Monotonicities in a Markov Chain Model for Valuing Corporate Bonds Subject to Credit Risk
- A simple Markov chain structure for the evolution of credit ratings
- Exploring the dynamics of business survey data using Markov models
- COVID-19 and credit risk: a long memory perspective
- A dependent hidden Markov model of credit quality
- Markov chain model with catastrophe to determine mean time to default of credit risky assets
- Credit scoring by incorporating dynamic networked information
- Modeling dependent credit rating transitions: a comparison of coupling schemes and empirical evidence
- Sparse mean-variance customer Markowitz portfolio optimization for Markov chains: a Tikhonov's regularization penalty approach
- Title not available (Why is that?)
- Numerical estimates of risk factors contingent on credit ratings
- Hybrid Monte Carlo methods in credit risk management
- Modeling of Dependent Credit Rating Transitions Governed by Industry-Specific Markovian Matrices
- Testing the Adequacy of Markov Chain and Mover-Stayer Models as Representations of Credit Behavior
- Identification of hidden Markov chains governing dependent credit-rating migrations
- A bivariate Markov modulated intensity model: applications to insurance and credit risk modelling
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