The model introduced in this article is designed to provide a consistent representation for both the real-world and pricing measures for the credit process. We find that good agreement with historical and market data can be achieved across all credit ratings simultaneously. The model is characterized by an underlying stochastic process that takes on values on a discrete lattice and represents c...

We pose here an optimization problem related to determining the best set of parameters for minimizing the variance of a Monte Carlo estimator of the probability of a rare event associated with potentially large losses on a portfolio of credit-risky investments. The parameters are associated with a specific importance sampling framework that seeks to sample scenarios with large losses by increas...

Managing human judgements is complicated by the fact that ratings rarely agree perfectly. This paper presents two methods to handle such disagreement. The rst method is to remove inconsistent ratings and it will be shown that this enhances the quality of the data. Further assumptions about the relation between ability and assessability of subjects allows us to recover the information in the inc...

We conducted a global study of the long-term issuer ratings of nonfinancial firms from Standard and Poor's Ratings Services (S&P) for the period 1998–2003. Specifically, we focused on the solicited versus unsolicited ratings and sample-selection bias in the analysis. Unlike the literature, we adopted an improved method using Wooldridge’s instrumentalvariable approach to mitigate the concern of ...

In this paper we analyze the source and level of the marketing gains when structured debt securities are sold at yields that reflect only their credit ratings, or specifically at the yield on an equivalently rated reference bond. We distinguish between credit ratings that are based on probabilities of default and ratings that are based on the expected default losses. We show that the marketing ...

We study the problem of evaluating the creditworthiness of banks using statistical, as well as combinatorics, optimization and logic-based methodologies. We reverse-engineer the Fitch credit risk ratings of banks using ordered logistic regression and Logical Analysis of Data (LAD). It is shown that LAD provides the most accurate rating model. The obtained ratings are successfully cross-validate...

In this paper we analyse the source and magnitude of marketing gains from selling structured debt securities at yields that reflect only their credit ratings, or specifically at yields on equivalently rated corporate bonds. We distinguish between credit ratings that are based on probabilities of default and ratings that are based on expected default losses. We show that subdividing a bond issue...

Credit rating agencies (CRA) are qualified as “auxiliaries of the financial information” by all the investors. Ratings are the results of a methodology used by CRA. Within the framework of a demystification of the method of work of agencies, the objective of this paper is to identify the importance of the accounting and financial information adjustments in the decisions of rating agencies. This...

This paper analyzes a model where investors use a credit rating to decide whether to finance a firm. The rating quality depends on the credit rating agency’s (CRA) effort, which is unobservable. We analyze optimal compensation contracts for the CRA that differ depending on whether the firm, investors or a social planner orders the rating. We find that rating errors are larger when the firm orde...

In this study, data from two credit rating agencies are analyzed to consider how different Bank Financial Strength Ratings and Credit compare. To my knowledge, prior research has not agencies, nor it compared general ratings. These facts make unique. Univariate analyses utilized show relationships in the ratings data, along with parametric non-parametric tests statistical inferences about data....