Credit Rating Migration Risk and Business Cycles
提出混合马尔可夫链模型来评估信用评级迁移风险，发现该模型能更准确预测长期风险，并在经济扩张时增加6%资本、衰退时释放17%资本，有助于实现巴塞尔III的反周期资本缓冲目标。
Abstract: Basel III seeks to improve the financial sector’s resilience to stress scenarios which calls for a reassessment of banks’ credit risk models and, particularly, of their dependence on business cycles. This paper advocates a Mixture of Markov Chains (MMC) model to account for stochastic business cycle effects in credit rating migration risk. The MMC approach is more efficient and provides superior out‐of‐sample credit rating migration risk predictions at long horizons than a naïve approach that conditions deterministically on the business cycle phase. Banks using the MMC estimator would counter‐cyclically increase capital by 6% during economic expansion and free up to 17% capital for lending during downturns relative to the naïve estimator. Thus, the MMC estimator is well aligned with the Basel III macroprudential initiative to dampen procyclicality by reducing the recession‐versus‐expansion gap in capital buffers.