A likelihood ratio test for stationarity of rating transitions

Rafael Weißbach and Ronja Walter

No 2008,27, Technical Reports from Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen

Abstract: For a time-continuous discrete-state Markov process as model for rating transitions, we study the time-stationarity by means of a likelihood ratio test. For multiple Markov process data from a multiplicative intensity model, maximum likelihood parameter estimates can be represented as martingale transform of the processes counting transitions between the rating states. As a consequence, the profile partial likelihood ratio is asymptotically X-2-distributed. An internal rating data set reveals highly significant instationarity.

Keywords: Stationarity; Multiple Markov process; Counting process; Likelihood ratio; Panel data (search for similar items in EconPapers)
JEL-codes: C33 C34 C41 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb475:200827

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