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Media type:
E-Article
Title:
Finding Generators for Markov Chains via Empirical Transition Matrices, with Applications to Credit Ratings
Contributor:
Israel, Robert B.;
Rosenthal, Jeffrey S.;
Wei, Jason Z.
Published:
Wiley, 2001
Published in:
Mathematical Finance, 11 (2001) 2, Seite 245-265
Language:
English
DOI:
10.1111/1467-9965.00114
ISSN:
0960-1627;
1467-9965
Origination:
Footnote:
Description:
In this paper we identify conditions under which a true generator does or does not exist for an empirically observed Markov transition matrix. We show how to search for valid generators and choose the “correct” one that is the most compatible with bond rating behaviors. We also show how to obtain an approximate generator when a true generator does not exist. We give illustrations using credit rating transition matrices published by Moody's and by Standard and Poor's.