10
votes
Why would Basel III prevent price discovery at credit markets?
The argument about Basel is an adjunct to the central bank argument. There, a relatively price-insenstive CB either distorts credit by buying it directly (ECB, Fed wrt Agencies). Or distorts it ...
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9
votes
How do I use machine learning to build a credit scoring model?
One excellent resource is to try Kaggle and to examine some of the competitions, some of which are specifically on the application of machine learning to credit scoring.
https://www.kaggle.com/c/...
- 2,089
6
votes
Why investment grade floor is set at Baa3/BBB-?
The differences in credit risk between Moody's Baa2 versus Baa3 versus Ba1 versus Ba2 are all comparable. People would pay much less attention to agency ratings had the regulators not forced them to. ...
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5
votes
Accepted
Visualising credit rating stability
One option to do it is a heatmap. Not sure which software are you using, but in matlab it is extremely simple to do and powerful to tweak.
Below an example. Let's assume there are 30 periods $t$ to $...
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5
votes
Accepted
Calculation of the Transition matrix for Credit rating
In order to arrive at an (partial) answer, let us assume that annual credit rating transitions form a Markov chain with absorbing default state $D$.
Further, let us assume that we have $K$ non-default ...
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4
votes
Why would Basel III prevent price discovery at credit markets?
Assume, for a moment, that all of the math behind modern portfolio theory is incorrect. See, for example, this video on deriving the distribution of returns. Without the normality assumption, ...
- 4,159
4
votes
Term structure of default probabilities without market data
Firstly it's good to straighten out our goal.
You correctly say, that IFRS9 requires analysis of expected losses.
There are two components of expected losses.
1) Expected probability of a default ...
- 561
4
votes
Accepted
Could we have prevented the World Economic Crisis in 2008?
U.S. Government DID save American International Group (AIG) from bankruptcy, since it was considered too big to fail, actually: a lot of financial institutions were insured by AIG. This Investopedia ...
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4
votes
Accepted
What structural model does Reuters use for default probability?
Reuters uses a proprietary model defined StarMine structural/SmartRatios Credit Risk model that has been developed by themselves and provided with the Reuters data service.
It does not exist a formal ...
- 2,456
4
votes
Where to find historical data on corporate credit ratings
I found this link with a lot of parsed data
http://ratingshistory.info/
3
votes
Why investment grade floor is set at Baa3/BBB-?
Yeah, default rate jumps considerably. For example in following, mid value of default rate jumps from 1% to 7.5 % :
"COMMISSION IMPLEMENTING REGULATION (EU) 2016/1799 of 7 October 2016 laying ...
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3
votes
Accepted
Why investment grade floor is set at Baa3/BBB-?
Cumulative default and transition rates for s&p credit ratings can be found here:
https://www.spglobal.com/ratings/en/research/articles/210407-default-transition-and-recovery-2020-annual-global-...
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3
votes
Accepted
Assessing Credit Rating Agencies
There are many papers.
Here are some random examples:
Many of the papers under https://www.michaeljacobsjr.com/research-papers/
http://dx.doi.org/10.2139/ssrn.1466710 Ralf Elsas, Sabine Mielert. ...
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2
votes
Are public historical time series available for ratings of sovereign debt?
In this page you have links to download all the historic data from all the agencies. https://www.wikirating.org/wiki/Portal:Data
Just scroll down to the "Credit Rating Agency Ratings History Data&...
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2
votes
Accepted
Modeling credit utilization and stock market growth
Yes of course, credit rates depend on interest rates (i.e. https://en.wikipedia.org/wiki/Libor), which are set by some group of banks in almost every country
Going further bankers analyze the market ...
2
votes
Fitting transition matrices in R by solving for coefficient
You can do this using the optim function in R. One possible solution is as follows:
...
2
votes
Who pays for sovereign ratings?
The "issuer-pay" model works like this: The Rating Agency goes to the issuer and says "We heard that you are going to issue bonds. We can give you a rating if you pay us XXX dollars. It will help you ...
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2
votes
How do you quantify credit risk?
If there is a CDS on the bond, that might be a good indicator to use, esp. if you want to compare one against another.
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2
votes
Probability of default
Yes, you can. Also, do not use Altman's Z. The extreme scores are predictive, but a load of empirical research shows the intermediate values are not predictive.
The best solution is a Bayesian ...
- 4,159
2
votes
Probability of default
Merton model will be a bit more quantitiative.
Z-Score is an option, as is Ohlson.
In the end you are going to want some non-defaulted->defaulted transition mapping based on factors you identify as ...
- 135
2
votes
Standardized numerical values for ratings
Mapping ordinal data to interval data is arbitrarily.
The ranking of rating agencies is ordinal data, so only comparing operators > or ...
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2
votes
Could we have prevented the World Economic Crisis in 2008?
Regarding how the rating agencies gave AAA ratings to CDOs and the like that clearly did not deserve those ratings - straightforward answer. The SEC licences all the ratings agencies as "nationally ...
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2
votes
Mapping internal ratings to external ratings for a scorecard
Assume your outcome/dependant variable is the rating agencies rating category, say 10 to 20 rating categories, you can use ordinal logistic regression which is more natural for this kinda problem. So ...
- 6,104
1
vote
Free API for Credit Rating (Moody's, SP500 or Fitch Rating)
Moodys own CreditEdge API gives credit ratings for corporates as well as other other credit risk data.
https://developer.moodysanalytics.com/products/creditedge
You have to sign up for an account and ...
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1
vote
Free API for Credit Rating (Moody's, SP500 or Fitch Rating)
If you want yeild for a given rating then FRED (https://fred.stlouisfed.org/series/DBAA) has great data.
Most of the others are in Bloomberg or other payment data sources...
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1
vote
A model for probability of credit rating change for a single issuer
traditional credit rating uses a set of macro and micro factors (country of incorporation political stability, economy, etc. ) and assigns subratings via a set a scorecards, based on the company's ...
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1
vote
Accepted
Calculate the implied loss rate on a loan, given the interest charged
If you have access to the payment history then would not it be better to estimate the loss rate using historical payment data? The thing with the interest rate is it will include compensation for a ...
- 6,104
1
vote
Standardized numerical values for ratings
One possible approach to mapping these ordinal measures into cardinal measures is to use something like average default probabilities of each of the ratings over the period in question. One can ...
- 5,517
1
vote
How to calculate credit spread from rating
Assuming you have a transition Matrix, you can obtain a term structure for each rating (AAA,AA,BB,etc...) by a matrix multiplication, as your transition matrix is a Markov Chain. This term Structure ...
1
vote
Probability of default
Take a look at the Altman Z Score, sounds like it is what you are looking for - https://en.wikipedia.org/wiki/Altman_Z-score
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