Stochastic Migration Models with Application to Corporate Risk

Les Cahiers du CREF of HEC Montréal Working Paper No. 04-11

71 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)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2004

Abstract

We consider a set of Markovian processes with Stochastic transition matrices. This specification extends the standard stochastic intensity model introduced by Cox in the two state case. Such a model is appropriate for the joint analysis of rating histories of several corporates, including the link between upgrades or downgrades, that is the so-called migration correlation. Different specifications of the micro- and macro-components of the model are introduced and discussed. As an illustration the ordered Probit model with unobservable dynamic factor is estimated from French data on corporate risk.

Keywords: Migration, rating, migration correlation, credit risk, stochastic intensity, autoregressive gamma process, Jacobi process, ordered qualitative model, Kalman filter, panel data

JEL Classification: C23, C35, G11

Suggested Citation

Gagliardini, Patrick and Gourieroux, Christian, Stochastic Migration Models with Application to Corporate Risk (May 2004). Les Cahiers du CREF of HEC Montréal Working Paper No. 04-11. Available at SSRN: https://ssrn.com/abstract=757348 or http://dx.doi.org/10.2139/ssrn.757348

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
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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 )

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Montreal, Quebec H3C 3J7
Canada

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

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92245 Malakoff Cedex
France
33.4117.7666 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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