A Note on Fitting Markov Operator Credit Risk Models
by Harley Thompson of Commonwealth Bank of Australia, and
Abstract: We estimate a Markov operator credit migration model in which credit conditions vary through time in response to underlying macroeconomic factors. Emphasis is given to practical issues arising when fitting the model to a portfolio of risk rated credits, including the treatment of incomplete data, accounting for portfolio regeneration and aggregation issues.
Keywords: Credit Risk, Portfolio Modelling, Stochastic Time Change, Markov Operator, CGMY.