Risk.net
Star quant proposes a new model for predicting changes in bond ratings
Richard Martin speaking with Mauro Cesa
Photo: Monika Ghose
Risk.net’s Cutting Edge pages.
Martin discusses his most recent paper,
Credit migration: generating generators, in which he proposes improvements to classic Markovian models.
Credit migration describes the evolution of upgrades and downgrades of bond ratings. It is commonly modelled using a matrix of parameters, known as generator matrix. But this approach has a known problem: a large number of parameters can lead to an unstable calibration, potentially making it difficult to identify the optimal solution.