English, Article edition: Credit risk rating migration and unobserved borrower heterogeneity Jeffrey R. Stokes; Jonathan B. Dressler; Lakshmi Balasubramanyan

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Credit risk rating migration and unobserved borrower heterogeneity
Author
  • Jeffrey R. Stokes
  • Jonathan B. Dressler
  • Lakshmi Balasubramanyan
Physical Description
  • article
Notes
  • Some past studies of credit risk ratings migration have found trend reversals and evidence that the data-generating process is nonstationary. Using a sample of Farm Credit System mortgages, we find no compelling statistical evidence of either phenomenon. We do find evidence that our sample of loans may be characterized by two types of borrowers – namely, movers and stayers. This type of borrower heterogeneity is unobserved because movers who do not migrate are indistinguishable from stayers who never migrate. We report on the development of a flexible nonparametric model for estimating transition probabilities. The model can also be used to estimate nonstationary transition probabilities and an example is provided.
  • Credit risk, Markov chain, Maximum entropy, Migration, Risk ratings
  • RePEc:eme:afrpps:v:68:y:2008:i:2:p:237-253
Language
  • English
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