Analysis of downgrade risk in credit portfolios with self-exciting intensity model
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We present an intensity based credit rating migration model and execute empirical analyses on forecasting the number of downgrades in some credit portfolios. The framework of the model is based on so-called top-down approach. We firstly model economy-wide rating migration intensity with a self-exciting stochastic process. Next, we characterize the downgrade intensity for the underlying sub-portfolio with some thinning model specified by the distribution of credit ratings in the sub-portfolio. The results of empirical analyses indicate that the model is to some extent consistent with downgrade data of Japanese firms in a sample period.
- JSIAM Letters
JSIAM Letters 3(0), 93-96, 2011
The Japan Society for Industrial and Applied Mathematics