Credit migration matrices are cardinal inputs to many risk management applications. Their accurate estimation is therefore critical. We explore three approaches, cohort and two variants of duration—time homogeneous and non-homogeneous—and the resulting differences, both statistically through...

This paper considers a simple model of credit risk and derives the limit distribution of losses under different assumptions regarding the structure of systematic and idiosyncratic risks and the nature of firm heterogeneity. It documents a rich and complex interaction between the underlying model...

We develop a framework for modeling conditional loss distributions through the introduction of risk factor dynamics. Asset value changes of a credit portfolio are linked to a dynamic global macroeconometric model, allowing macro effects to be isolated from idiosyncratic shocks. Default...