The impact of downward rating momentum on credit portfolio risk

Arbeitspapier

Rating downgrades are known to make subsequent downgrades more likely. We analyze the impact of this ?downward momentum? on credit portfolio risk. Using S&P ratings from 1996 to 2005, we estimate a transition matrix that is insensitive to and a second matrix that is sensitive to previous downgrades. We then derive differences between the insensitive portfolio Value-at-Risk (VaR) and the momentum-sensitive VaR. We find realistic scenarios where investors who rely on insensitive transition matrices underestimate the VaR by eight percent of the correct value. The result is relevant for risk managers and regulators since banks neglecting the downward rating momentum might hold insufficient capital.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Discussion Paper Series 2 ; No. 2008,16

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Duration Analysis; Optimal Timing Strategies
• Thema: Rating drift ; Downward momentum ; Credit portfolio risk ; Value-at-Risk ; Kreditrisiko ; Portfolio-Management ; Kreditwürdigkeit ; Value at Risk ; Theorie ; USA

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Güttler, André ; Raupach, Peter
• Ereignis: Veröffentlichung
• (wer): Deutsche Bundesbank
• (wo): Frankfurt a. M.
• (wann): 2008

Weitere Informationen

• Handle: http://hdl.handle.net/10419/19793
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ