Corpus ID: 237571783

Composite Likelihood for Stochastic Migration Model with Unobserved Factor

@inproceedings{Djogbenou2021CompositeLF,
  title={Composite Likelihood for Stochastic Migration Model with Unobserved Factor},
  author={A Djogbenou and Christian Gouri'eroux and Joann Jasiak and Maygol Bandehali},
  year={2021}
}
We introduce the Maximum Composite Likelihood (MCL) estimation method for the stochastic factor ordered Probit model of credit rating transitions of firms. This model is recommended to banks and financial institutions as part of internal credit risk assessment procedures under the Basel III regulations. However, its exact likelihood function involves a high-dimensional integral, which can be approximated numerically and next this approximation can be maximized. However, the associated estimates… Expand

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