Some past studies of credit risk ratings migration have found trend reversals and evidence that the data generating process is non-stationary. Using a sample of FCS mortgages, we find no compelling statistical evidence of either phenomenon. We do find evidence that our sample of loans may be...

The characterization of obligor ratings dynamics as a Markov chain is a common assumption in credit risk modeling. While a continuous time Markov chain is most appealing due to the potential for more robust transition probability estimates, the cost of continuously monitoring obligor ratings can...