Migration Correlation: Definition and Efficient Estimation

Les Cahiers du CREF of HEC Montréal Working Paper No. 04-13

47 Pages Posted: 18 Jul 2005

See all articles by Patrick Gagliardini

Patrick Gagliardini

USI Università della Svizzera italiana; Swiss Finance Institute

Christian Gourieroux

University of Toronto - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO); Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE); National Bureau of Economic Research (NBER)

Date Written: 2004

Abstract

The aim of this paper is to explain why cross-sectional estimated migration correlations displayed in the academic and professional literature can be either not consistent, or inefficient, and to discuss alternative approaches. The analysis relies on a model with stochastic migration in which the parameters of interest, that are migration correlations, are precisely defined. The impossibility of estimating consistently the migration correlations from cross-sectional data only is emphasized. We explain how to handle with individual rating histories, how to weight appropriately the cross-sectional estimators and how to estimate efficiently the joint migration probabilities at longer horizons.

Keywords: Credit risk, migration, migration correlation, stochastic transition, rating

JEL Classification: C23, C35, G11

Suggested Citation

Gagliardini, Patrick and Gourieroux, Christian, Migration Correlation: Definition and Efficient Estimation (2004). Les Cahiers du CREF of HEC Montréal Working Paper No. 04-13. Available at SSRN: https://ssrn.com/abstract=757346 or http://dx.doi.org/10.2139/ssrn.757346

Patrick Gagliardini (Contact Author)

USI Università della Svizzera italiana ( email )

Via Buffi 13
Lugano, TN 6900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Christian Gourieroux

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4349 (Phone)
416-978-6713 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE) ( email )

15 Boulevard Gabriel Peri
92245 Malakoff Cedex
France
33.4117.7666 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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