Questions tagged [credit-ratings]

The credit rating is a qualitative evaluation of the credit worthiness of a borrower (consumer, company or government) done by a rating agency, a credit bureau or a bank that consists of an estimate of the borrower's capacity to to pay back the debt.

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6 answers
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Are public historical time series available for ratings of sovereign debt?

The nice list of free online data sources What data sources are available online? does not mention any data from ratings agencies. Are historical time series available for sovereign credit ratings (...
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8 votes
1 answer
400 views

Who pays for sovereign ratings?

Does the "issuer-pay" model hold also for sovereign credit ratings? Do States pay for having their bond being rated?
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7 votes
1 answer
797 views

is there a mapping from Altman Z-score for private companies to bond ratings or probability of default?

On wikipedia, there is a formula to calculate the Altman Z-score for private companies: Z-score estimated for private firms: T1 = (Current Assets − Current Liabilities) / Total Assets T2 = Retained ...
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6 votes
1 answer
998 views

Term structure of default probabilities without market data

With the forthcoming new regulations, IFRS9, financial institutions will be required to model life time expected credit losses. Consequently, it is necessary to model the term structure of default ...
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6 votes
1 answer
767 views

How do I get the average transition matrix for three consecutive years?

I have a one year transition matrix for three consecutive years. Multiplying these three matrices together yields the three year transition matrix. I want to obtain the average transition matrix for ...
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5 votes
4 answers
4k views

Credit Rating or Probability of Default from Financial Ratios

Does anyone know of any papers about credit rating development or probability of default estimation done based on financial ratios that also include methodology and maybe good/bad criteria? Something ...
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4 votes
2 answers
918 views

Why would Basel III prevent price discovery at credit markets?

I'm referring to this interview with Michael Burry. He says: Central banks and Basel III have more or less removed price discovery from the credit markets. Why would Basel III cause this effect?
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4 votes
4 answers
718 views

Could we have prevented the World Economic Crisis in 2008?

There is an expression - "Too big to fall." - which means that if a bank or a financial institution manages a sufficient part of the financial assets than the state can't afford that this bank or ...
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4 votes
1 answer
541 views

What structural model does Reuters use for default probability?

When using Reuters, for each listed company there is credit tab that shows relevant information in terms of credit default. There is also rating class as well as one year default probability. It is ...
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4 votes
1 answer
229 views

Fitting transition matrices in R by solving for coefficient

I'm using various matrices to impute a fitted transition matrix for credit ratings by solving for a variable [S]. Essentially the idea is to determine a base matrix and stress matrix to compare to a ...
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4 votes
0 answers
307 views

Credit Rating vs Bond Yield

I am looking for some references on quantifying the dependence between credit rating and bond yield. I have some data (found some Bloomberg indices which give average yield based on credit rating), ...
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3 votes
1 answer
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How do I use machine learning to build a credit scoring model? [closed]

There are currently a lot of ways for credit scoring. The most popular one is the FICO score, and its variants. For my masters thesis, I would like to work on making my own credit scoring system using ...
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3 votes
2 answers
507 views

Deriving credit spreads or migration matrices from prob of default

How do I derive credit migration/transition matrices or spreads from default probability? May you please provide references, or do you know what type of articles or authors to find?
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3 votes
1 answer
386 views

Visualising credit rating stability

I am looking for a way to visualize credit rating stability results. Some background: Per rating class (e.g. AAA, AA+, AA, AA-, A+, ...), I look at the percentage of obligors that keep their rating ...
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3 votes
3 answers
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Probability of default

I have to calculate probability of default (PD) rates for our clients (I am working in a Bank) based on clients' financials. Could you, please, advise me how to do that? I think we have two Options: ...
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3 votes
3 answers
1k views

Interpolating probabilities of default

I have a table of cumulative probabilities of default of industrial bonds, in time and credit rating. It is similar to S&P whitepaper here. Basically, it looks like this (sample numbers): ...
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  • 274
3 votes
1 answer
2k views

Scaling of a transition matrix

I am working on a ratings transition matrix and I wondered how people scale it down to shorter time periods (although one should more or less stick to the estimation period i know). It is clear that ...
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3 votes
1 answer
254 views

Do bond credit ratings suffer from "ratings inflation"?

A friend of mine who studies game theory suggested that credit ratings from the bond ratings agencies, such as Moody's, S&P, and Fitch, may suffer from a sort of "ratings inflation" similar to the ...
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3 votes
1 answer
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Why Beta Distribution for Credit Migration

When modelling credit migration probabilities (e.g. AAA to AA), research has indicated the use of the Beta Distribution simply because it fits empirical data. My question is; What are some other pros ...
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1 answer
187 views

Sovereign Credit Rating

I am working on the determinants of sovereign credit rating. I am looking for the historical rating data-set for euro-zone ...
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2 votes
1 answer
1k views

Moody's Sovereign Ratings: Clarification on Definitions and Symbols

I'm working with sovereign ratings at present. With regard to Moody's there are a few things unclear to me in their definitions. Both questions refer to the sovereign rating history in Bloomberg CSDR (...
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2 votes
2 answers
307 views

Standardized numerical values for ratings

Is there a standardized way of transforming the ratings of any of the major ratings agencies (S&P, Moody's, Fitch) to a numerical value. Ideally, it might be possible to create a similar scale for ...
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2 votes
1 answer
331 views

How to perform significance test on transition matrices

Say you have in your hand a transition matrix published by Moody, and you also collected the rating information for a sample of bonds, which you use to form your own transition matrix. How can we use ...
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2 votes
1 answer
42 views

Efficient encoding technique for credit ratings

Is there any categorical encoding technique for credit ratings that take into account the kind of non linear nature of the notches of the credit ratings? The literature standard is the ordinal one ...
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2 votes
1 answer
83 views

A model for probability of credit rating change for a single issuer

I am looking to model the probability of a single issuer upgrading or downgrading it's credit rating at some time using historical data. I have done research and everything I have found so far are for ...
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2 votes
1 answer
295 views

Time series of European sovereign credit ratings by the Big Three?

I would need time series, from 2000 to 2015 (if possible) of sovereign credit ratings by Moody's, S&P and Fitch. Could you suggest me a source or provide me such a dataset? Thank you very much!
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2 votes
0 answers
89 views

Historical Credit Ratings for companies

I am looking forward to get my master thesis done. I have acces to Thomson Reuters Eikon. Unfortunately, they do not provide a good database with historical credit ratings - at least it is not ...
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2 votes
0 answers
178 views

Bayesian logit model in Psychometric or Behavioural Testing for Credit Scoring in Developing Countries

A lot of parameters in one title, I know. So there's credit scoring but not using credit history. Then there's using a Bayesian logit model. Then there's doing so in a developing country such as Haiti ...
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2 votes
0 answers
429 views

Obtaining the default probability and recovery rate for each credit rating?

I have the following questions for obtaining the credit rating: Given that I have cumulative default probability of each credit rating from Global Corporate Average Cumulative Default Rates (1982-...
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  • 501
2 votes
1 answer
127 views

Creditworthiness indicator for copula one-factor model

In this paper in equation 15 on page 261 dealing with one factor copula model, one is using creditworthiness indicator as one of a variables. It is defined as \begin{equation} Y_c = \sqrt{\rho_c} Z +...
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1 vote
3 answers
168 views

Why investment grade floor is set at Baa3/BBB-?

I have studied methodologies for Moody's and S&P ratings but haven't seen any instance where the respective agencies have mentioned the reason choosing Baa3/BBB- as the dividing line between ...
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1 vote
1 answer
1k views

Calculation of the Transition matrix for Credit rating

Let say, I have Cumulative default rates for various credit rating as below - Given this, how can I calculate the typical ...
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1 vote
2 answers
353 views

How do you quantify credit risk?

I am trying to figure out how to quantify the change in price on a bond for a change in credit risk. I'm not even sure how to quantify a change in credit risk, but I'm thinking possibly something ...
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1 vote
2 answers
356 views

moody's credit ratings for senior unsecured bonds

Can 2 senior unsecured bonds from the same obligor have different moody's credit ratings? Or do they both have to have the same rating because they are in the same capital structure? Thanks
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1 vote
2 answers
717 views

Free API for Credit Rating (Moody's, SP500 or Fitch Rating)

Is there any API out there that can get Credit Rating? Not just contries, but also for companies. I found this question on quant stack exchange. But it's not an easy API. definition: A credit rating ...
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1 vote
1 answer
45 views

Modeling credit utilization and stock market growth

I relatively new to financial mathematics but I am wondering if at all there exists a relationship between credit utilization (the rate at which the public accesses credit from financial institutions) ...
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1 vote
1 answer
57 views

Estimating credit transition probabilities from additional information

Let say $P_{i,j}, j = 1,2,3, DEF$ are the probabilities of transitions from an initial rating $i$ to rating $j$, where $P_{i, DEF}$ represents the default probability from that initial rating. Now let ...
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1 vote
1 answer
52 views

Where can I find recent tables with the average cumulative default rates?

I'm mostly interested in Moody's average corporate cumulative default rates, possibly in 2020 or the latest version. I tried to take a look at Moody's website but I am still in trouble. The latest ...
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1 vote
1 answer
98 views

Observed rating migration matrix to derive the generator matrix

I am doing some reading on the derivation of credit rating migration/transition matrices and probability of default term structures. I understand that a homogeneous Markov chain can be either discrete-...
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1 vote
1 answer
3k views

How to calculate credit spread from rating

I've been trying to calculate the credit spread of a financial institution with a Fitch rate of A. By using the transition matrix (https://www.fitchratings.com/web_content/nrsro/nav/NRSRO_Exhibit-1....
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1 vote
0 answers
53 views

Why do rating grades have different PD ranges?

The following shows link how to map a PD to a S&P rating: S&P Rating PD range [%] AAA [0-0.05) AA [0.05-0.09) A [0.09-0.23) BBB [0.23-1.16) BB [1.16-5.44) B [5.44-4.21) CCC [14.21-) I ...
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1 vote
1 answer
201 views

Term Structure of Corporate Bond

I am looking for some clarity on data for Corporate Bond term structure based on Credit Rating. Let say, I need to get the Term ...
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1 vote
0 answers
220 views

Mapping FICO score to PD or Moody's Rating

I need to analyze the risk of a fund with various types of credits, such as consumer, student, and real estate. These categories all have FICO credit scores. I need to assess the risk of the fund ...
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1 vote
0 answers
49 views

ETF ranking/rating?

Is it possible to rank/rate ETFs from the standpoint of their riskiness? I am aware of Morningstar's star-based ratings, but based on my limited research they seem to take into account only returns ...
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1 vote
0 answers
143 views

PD validation in the low/no default setting

The topic of this question is the validation as prescribed in the Basel N ($N \ge 2$) framework. The task is given the probability of default $p_k$ for $K$ rating classes at time $t$ and the outcome ...
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1 vote
0 answers
216 views

Three-state Markov Chain: Credit rating question

Consider a credit-rating system, with two solvency states (A & B) and a default state (D), and assuming recovery rate and interest rate are 0%. The one year credit spread for an A-rated company ...
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1 vote
0 answers
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Altman Z-Score model for PD calculation [duplicate]

I am approaching you with one important for me question. I have a task to calculate probability of default for our clients. I used an Altman Z-Score model to calculate the Z-Scores for each client. ...
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  • 11
0 votes
1 answer
198 views

Mapping internal ratings to external ratings for a scorecard

I am building an internal rating model for commercial loans relying on expert-based scorecards. The ultimate goal of the exercise is to develop the model so that it maps with credit rating agencies' ...
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0 votes
2 answers
10k views

S&P's Sovereign Ratings: Clarification on Definitions and Symbols

Similar to an earlier question, I am now looking at S&P's sovereign ratings. Here, as in the case of Moody's, a few things are unclear to me in terms of the definitions used by Standard & Poor'...
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  • 227
0 votes
1 answer
91 views

Credit spreads adjusted for rating migration and default

Given the below 1-year rating transition matrix and cumulative default rates, I am interested in calculating credit spread adjusted for defaults so I can compare this with the outright credit spread. ...
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