We propose a Bayesian nonparametric model to estimate rating migration matrices and default probabilities using the reinforced urn processes (RUP) introduced in Muliere et. al (2000). The estimated default probability becomes our prior information in a parametric model for the prediction of the number of bankruptcies, with the only assumption of exchangeability within rating classes. The Polya urn construction of the transition matrix justifies a Beta distributed de Finetti measure. Dependence among the processes is introduced through the dependence among the default probabilities, with the Bivariate Beta Distribution proposed in Olkin and Liu (2003) and its multivariate generalization.

Peluso, S., Mira, A., Muliere, P., Reinforced urn processes for credit risk models, <<JOURNAL OF ECONOMETRICS>>, 2015; 184 (1): 1-12. [doi:10.1016/j.jeconom.2014.08.003] [http://hdl.handle.net/10807/66014]

Reinforced urn processes for credit risk models

Peluso, Stefano;
2015

Abstract

We propose a Bayesian nonparametric model to estimate rating migration matrices and default probabilities using the reinforced urn processes (RUP) introduced in Muliere et. al (2000). The estimated default probability becomes our prior information in a parametric model for the prediction of the number of bankruptcies, with the only assumption of exchangeability within rating classes. The Polya urn construction of the transition matrix justifies a Beta distributed de Finetti measure. Dependence among the processes is introduced through the dependence among the default probabilities, with the Bivariate Beta Distribution proposed in Olkin and Liu (2003) and its multivariate generalization.
Inglese
Peluso, S., Mira, A., Muliere, P., Reinforced urn processes for credit risk models, <<JOURNAL OF ECONOMETRICS>>, 2015; 184 (1): 1-12. [doi:10.1016/j.jeconom.2014.08.003] [http://hdl.handle.net/10807/66014]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/66014
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