A simple Markov chain structure for the evolution of credit ratings

Amparo Baíllo and José Luis Fernández

Applied Stochastic Models in Business and Industry, 2007, vol. 23, issue 6, 483-492

Abstract: We focus on continuous Markov chains as a model to describe the evolution of credit ratings. In this work it is checked whether a simple, tridiagonal type of generator provides a good approximation to a general one. Three different tridiagonal approximations are proposed and their performance is checked against two generators, corresponding to a volatile and a stable period, respectively. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmbi:v:23:y:2007:i:6:p:483-492

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