Analyzing rating transitions and rating drift with continuous observations

  title={Analyzing rating transitions and rating drift with continuous observations},
  author={David Lando and Torben M. Sk\odeberg},
We consider the estimation of credit rating transitions based on continuous-time observations. Through simple examples and using a large data set from Standard and Poor’s, we illustrate the difference between estimators based on discrete-time cohort methods and estimators based on continuous observations. We apply semi-parametric regression techniques to test for two types of non-Markov effects in rating transitions: Duration dependence and dependence on previous rating. We find significant… CONTINUE READING
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