A simple Markov chain structure for the evolution of credit ratings | Zendy

Baíllo Amparo | Zendy; Fernández José Luis | Zendy

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A simple Markov chain structure for the evolution of credit ratings

Author(s) -

Baíllo Amparo,

Fernández José Luis

Publication year - 2007

Publication title -

applied stochastic models in business and industry

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.413

H-Index - 40

eISSN - 1526-4025

pISSN - 1524-1904

DOI - 10.1002/asmb.685

Subject(s) - markov chain , tridiagonal matrix , simple (philosophy) , generator (circuit theory) , focus (optics) , mathematics , markov process , computer science , mathematical optimization , mathematical economics , statistics , thermodynamics , physics , power (physics) , philosophy , eigenvalues and eigenvectors , quantum mechanics , optics , epistemology

We focus on continuous Markov chains as a model to describe the evolution of credit ratings. In this work it is checked whether a simple, tridiagonal type of generator provides a good approximation to a general one. Three different tridiagonal approximations are proposed and their performance is checked against two generators, corresponding to a volatile and a stable period, respectively. Copyright © 2007 John Wiley & Sons, Ltd.

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