In banking practice, rating transition matrices have become the standard approach of deriving multi-year probabilities of default (PDs) from one-year PDs, the latter normally being available from Basel ratings. Rating transition matrices have gained in importance with the newly adopted IFRS 9...

This paper proposes a simple technical approach for the analytical derivation of Point-in-Time PD (probability of default) forecasts, with minimal data requirements. The inputs required are the current and future Through-the-Cycle PDs of the obligors, their last known default rates, and a...

We propose serial correlation-robust asymptotic confidence bands for the receiver operating characteristic (ROC) curve and its functional, viz. the area under ROC curve (AUC), estimated by quasi-maximum likelihood in the binormal model. Our simulation experiments confirm that this new method...

For decades, the academic literature has focused on three survey measures of expected inflation: the Livingston Survey, the Survey of Professional Forecasters, and the Michigan Survey. While these measures have been useful in developing models of forecasting inflation, the data are low frequency...

Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to diverse models of bankruptcy. One “stylized fact” is...

This paper proposes a new method of forecasting euro area quarterly real GDP that uses area-wide indicators, which are derived by optimally pooling the information contained in national indicator series. Following the ideas of predictive modeling, we construct the area-wide indicators by...

We present a mixed-frequency model for daily forecasts of euro area inflation. The model combines a monthly index of core inflation with daily data from financial markets; estimates are carried out with the MIDAS regression approach. The forecasting ability of the model in real-time is compared...

We argue that Islamic principles, in particular the avoidance of ribā and gharar should be applied with respect to real economic value rather than to monetary value in terms of conventional currency. In order to reconcile monetary value with economic value, we propose a reference currency...

This collection of papers analyzes the versatility and predictive power of survey expectations data in asset pricing and macroeconomic forecasting. The first paper, Using Sentiment Surveys to Predict GDP Growth and Stock Returns sheds new light on the question of whether or not sentiment...