Rating philosophies: some clarifications
Zoltan Varsanyi ()
MPRA Paper from University Library of Munich, Germany
In this paper I try to give answers to some of the questions and problems that arise in relation to point in time (PIT) and through the cycle (TTC) rating philosophies. One of the most confusing of these is the definition of the two approaches that, as I argue, should be based on the scope of information behind the systems. Through a simple model I demonstrate that the results of quantitative analyses can be very sensitive to the definitions and, additionally, the stress concept applied. I analyze the role played by the rating philosophies in capital requirements calculations and stress tests, and touch on their implications on the pro-cyclicality of credit risk capital regulation.
Keywords: rating model; rating philosophy; stress test; pro-cyclicality (search for similar items in EconPapers)
JEL-codes: G28 C1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hpe and nep-rmg
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https://mpra.ub.uni-muenchen.de/1733/1/MPRA_paper_1733.pdf revised version (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:1660
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