• Corpus ID: 250408087

An introduction to rating triggers for collateral-inclusive XVA in an ICTMC framework

  title={An introduction to rating triggers for collateral-inclusive XVA in an ICTMC framework},
  author={Kevin Kamm},
In this paper, we model the rating process of an entity as a piecewise homogeneous continuous time Markov chain. We focus specifically on calibrating the model to both historical data (rating transition matrices) and market data (CDS quotes), relying on a simple change of measure to switch from the historical probability to the risk-neutral one. We overcome some of the imperfections of the data by proposing a novel calibration procedure, which leads to an improvement of the entire scheme. We… 
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