Structured Dictionary Learning of Rating Migration Matrices for Credit Risk Modeling

Michaël Allouche (), Emmanuel Gobet (), Clara Lage () and Edwin Mangin ()
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Michaël Allouche: CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Emmanuel Gobet: CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Clara Lage: CMAP - Centre de Mathématiques Appliquées de l'Ecole polytechnique - Inria - Institut National de Recherche en Informatique et en Automatique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique
Edwin Mangin: BNPP

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Abstract: Rating Migration Matrix is a crux to assess credit risks. Modeling and predicting these matrices are then an issue of great importance for risk managers in any financial institution. As a challenger to usual parametric modeling approaches, we propose a new structured dictionary learning model with auto-regressive regularization that is able to meet key expectations and constraints: small amount of data, fast evolution in time of these matrices, economic interpretability of the calibrated model. To show the model applicability, we present a numerical test with real data. The source code and the data are available at https://github.com/michael-allouche/ dictionary-learning-RMM.git for the sake of reproducibility of our research.

Keywords: Rating Migration Matrix; Dictionary learning; auto-regressive modeling; interpretability (search for similar items in EconPapers)
Date: 2024-01-10
New Economics Papers: this item is included in nep-rmg
Note: View the original document on HAL open archive server: https://hal.science/hal-03715954v2
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Published in Computational Statistics, 2024, ⟨10.1007/s00180-023-01449-y⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03715954

DOI: 10.1007/s00180-023-01449-y

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