Gagliardini, Patrick, Christian S. Gouriéroux, "Migration Correlation: Definition and efficient estimation", Journal of Banking & Finance, Vol. 29, No. 4, (April 2005), pp. 865-894.
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.