Questions tagged [transition-matrix]

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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 ...
3 votes
2 answers
511 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?
  • 831
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 ...
  • 2,894
2 votes
1 answer
505 views

Price of Bond given credit state matrix

"Consider a credit rating system consisting of four states, A,B,and D(default) with the following annual credit transition probability: A= [ 0.7, 0.2, 0.1; 0.2, 0.5,0.3; 0,0,1] For a company rated B,...
  • 83
2 votes
1 answer
338 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 ...
  • 339
2 votes
0 answers
736 views

Credit Spread, Transition Matrix

Consider a credit rating system consisting of three credit states, A, B and D (default) with the following annual credit transition probability: T = [0.7 0.2 0.1;0.2 0.5 0.3; 0 0 1]. For a company ...
  • 83
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 ...
  • 615
1 vote
1 answer
109 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-...
  • 145
1 vote
0 answers
231 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 ...
1 vote
0 answers
105 views

Evaluating Fama French 3 factor model Using Fama Macbeth

Hi Can someone please explain me how the cross sectional calculation can be done. For an example, I'm having a vector like this. Vector 1: This is the vector where all the excess returns for n ...
  • 103
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 ...
  • 11
0 votes
1 answer
45 views

Transition Matrix Operation in Stoikov's Micro Price Paper

Sasha Stoikov's paper provides an interesting finite state approach to modeling the mid. It makes good sense to me except one property. On page 7 of the linked paper, $$G^1(x)=\left(\sum_s\mathbf{Q}^{...
0 votes
0 answers
141 views

Developing Markov Transition Matrix

I’m working with historical credit performance data and would like to build a transition matrix to predict defaults and delinquencies. I can model the transition between states (ie current - ...