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...

In this paper we explain how to use rating histories provided by the internal scoring systems of banks and by rating agencies in order to predict the future risk of a set of borrowers. The method is developed following the steps suggested by the Basle Committee. To introduce both migration...

We develop an algorithm to compute asset allocations for Kahneman and Tversky's (1979) prospect theory. An application to benchmark data as in Fama and French (1992) shows that the equity premium puzzle is resolved for parameter values similar to those found in the laboratory experiments of...