Using a structural model of default, I derive rating characteristics if ratings are meant tolook ‘through the cycle’ as opposed to being based on the borrowers’ current condition.The through-the-cycle method, which is employed by most rating agencies, requires aseparation of permanent and...

This paper uses Monte Carlo simulations to assess the impact of noisy inputparameters on the accuracy of estimated portfolio credit risk. Assumptionsabout input quality are derived from the distribution of historical samplestatistics commonly used in default risk modelling. The resulting...