Frydman, Halina; Schuermann, Til - In: Journal of Banking & Finance 32 (2008) 6, pp. 1062-1075
Despite mounting evidence to the contrary, credit migration matrices, used in many credit risk and pricing applications, are typically assumed to be generated by a simple Markov process. Based on empirical evidence, we propose a parsimonious model that is a mixture of (two) Markov chains, where...