Empirical validation of the credit rating migration model for estimating the migration boundary

Yang Lin and Jin Liang

Journal of Risk Model Validation

Abstract: In this paper, a structural model for credit rating migration is developed and validated, by which the migration boundary is recovered for the first time. The model is a steady-state model based on the 2015 framework by Hu et al and is applied to two long-term corporate bonds. The empirical results show that the theoretical boundary values fit practical ones quite well. This research shows that the model offers an applicable method to identify the credit rating migration boundary and provides preliminary evidence of the effectiveness of the model.

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