The Estimation of Transition Matrices for Sovereign Credit Ratings

35 Pages Posted: 17 Nov 2011

See all articles by William Robert Maurice Perraudin

William Robert Maurice Perraudin

Risk Control Limited

Yen-Ting Hu

affiliation not provided to SSRN

Rudiger Kiesel

affiliation not provided to SSRN

Date Written: January 2, 2002

Abstract

Rating transition matrices for sovereigns are an important input to risk management of portfolios of emerging market credit exposures. They are widely used both in credit portfolio management and to calculate future loss distributions for pricing purposes. However, few sovereigns and almost no low credit quality sovereigns have ratings histories longer than a decade, so estimating such matrices is difficult. This paper shows how one may combine information from sovereign defaults observed over a longer period and a broader set of countries to derive estimates of sovereign transition matrices.

Keywords: Sovereigns, rating transition matrices, sovereign defaults

JEL Classification: E44

Suggested Citation

Perraudin, William Robert Maurice and Hu, Yen-Ting and Kiesel, Rudiger, The Estimation of Transition Matrices for Sovereign Credit Ratings (January 2, 2002). Journal of Banking and Finance, Vol. 26, 2002. Available at SSRN: https://ssrn.com/abstract=1961038

William Robert Maurice Perraudin (Contact Author)

Risk Control Limited ( email )

13-14 Dean Street
London, SE21 8LU
United Kingdom

Yen-Ting Hu

affiliation not provided to SSRN ( email )

Rudiger Kiesel

affiliation not provided to SSRN ( email )

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