The validation of credit rating systems has recently attracted particular interest both from banks and their supervisors as well as from academic research. Whereas the main interest has been focused on backtesting methods, alternative approaches such as benchmarking are of growing importance....

We suggest a new framework for the use of multi-rater information in the validation of credit rating systems, applicable in any validation process where rating information from different sources is available. As our validation framework does not rely on historical default information it appears...

In this paper we examine the influence of the granularity of a rating system on the resulting regulatory capital requirements with respect to the framework released by the Basel Committee on Banking Supervision (Basel II). We define granularity as the number of cohorts or rating classes used to...

The objective of this paper is to estimate and test multifactor versions of the Cox-Ingersoll-Ross (CIR) model of the nominal term structure of interest rates. The proposed state-space approach integrates time-series and cross-sectional aspects of the CIR model, is consistent with the underlying...

Accurate rating systems are of key importance for banks to price and manage their loan portfolios. In this paper we analyze the choice of the rating technology in an oligopolistic banking sector. In our model the rating system estimates the probabilities of default for the individual borrowers...

In this paper we develop a model of the economic value of a credit rating system. Increasing international competition and changes in the regulatory framework driven by the Basel Committee on Banking Supervision (Basel II) called forth incentives for banks to improve their credit rating systems....

Many pricing and risk management models need credit spread curves as an input. In the corporate bond market the estimation of credit spread curves is not trivial. Most issuers have only too few bonds outstanding and frequently these bonds are denominated in different currencies. To ensure a...

The traditional method of credit spread estimation is based on subtracting independently estimated risk-free and risky term structures of interest rates which in many cases yields unrealistically shaped and often irregular credit spread curves. A parsimonious joint estimation of the risk-free...

It is the aim of this paper to measure the impact of liquidity on European Monetary Union (EMU) government bond prices. Although there is a growing theoretical and empirical literature on liquidity effects in fixed income markets there is no clear answer how to measure liquidity and whether...

In the context of understanding risk-regulatory behavior of financial institutions we propose a general dynamical game between several agents who pick their trading strategies depending on their individual risk-to-wealth ratio. The game is studied numerically for different network topologies....