An Anatomy of Rating Through the Cycle
Author | : Gunter Löffler |
Publisher | : |
Total Pages | : 33 |
Release | : 2001 |
ISBN-10 | : OCLC:1290402894 |
ISBN-13 | : |
Rating | : 4/5 (94 Downloads) |
Download or read book An Anatomy of Rating Through the Cycle written by Gunter Löffler and published by . This book was released on 2001 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using an asset-based model of default, I derive rating characteristics if ratings are meant to look 'through the cycle' as opposed to being based on the borrowers' current condition. The through-the-cycle method, which is employed by most rating agencies, requires a separation of permanent and cyclical components of default risk. In a time series setting, this can be done through the Kalman filter. The analysis shows that many empirical irregularities of agency ratings could be the consequence of such a rating method. The stability of through-the-cycle ratings is higher than that of their current-condition counterparts, and their correlation with actual default probabilities is relatively low. Though not predictable in the usual sense, rating changes exhibit several properties which call for a reconsideration of the existing evidence.