*Tid:* **8 september 2014 kl 15.15-16.00.**
**Rum 3721**, Institutionen för
matematik, KTH, Lindstedtsvägen 25, plan 7.
Karta!
*Föredragshållare:*
**
Rickard Gunnvald
**
**Titel:**
Estimating Probability of Default Using Rating Migrations in Discrete and Continuous Time.
(Master Thesis)
**Abstract**
During the financial crisis that began in 2008, even whole countries
and very large companies defaulted or were on the verge of
defaulting. The turmoil made risk managers and regulators more
vigilant in scrutinising their risk assessment. The probability of
default (PD) is an essential parameter in measuring counterparty
credit risk, which in turn has impact on pricing of loans and
derivatives. The last decade, a method using Markov chains to
estimate rating migrations, migration matrices and PD has evolved to
become an industry standard. In this thesis, a holistic approach to
implementing this approach in discrete and continuous time is taken.
The results show that an implementation in continuous time has many
advantages. Also, it is indicated that a bootstrap method is
preferred to calculate confidence intervals for the PDs. Moreover, an
investigation show that the frequently used assumption of
time-homogeneous migration matrices is most probably wrong. By
studying expansions and recessions, specific expansion and recession
migration matrices are calculated to mitigate the impact of
time-inhomogeneity. The results indicate large differences of
estimated PDs over the economic cycle, which is important knowledge
to be able to quote correct prices for financial transactions
involving counterparty credit risk.
The full report (pdf)
Till seminarielistan
To the list of
seminars |