Questions tagged [transition-matrix]

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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,...
3
votes
1answer
1k 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 ...