How good is “good”? Based on the assumption that asymmetric information exists between decentralized relationship managers who create soft information in credit rating systems and a bank’s management, this study deals theoretically and empirically with the existence of rater effects in bank internal credit ratings. If relationship managers have an incentive to manipulate credit ratings, the rat...

Borrowing cost reduction by interest rate swaps––an option pricing analysis q Abstract Interest rate swaps generally involve two firms with different credit ratings. A quality spread differential (QSD) is observed to exist at different maturities for firm debts with different credit ratings. The quality spread differential allows two firms with different credit ratings to decrease their borrowi...

Credit ratings and accounting-based Altman Z-scores are two important sources of information for assessing the creditworthiness of firms. In this paper we build a model based on a double Hidden Markov Model, (DHMM), to extract information about the “true” credit qualities of firms from both the Z-scores evaluated from the accounting ratios of the firms and their posted credit ratings. The evolu...