Modeling Market Implied Ratings


Type Research Project

Duration Oct. 1, 2010 - Sept. 30, 2012

  • Institute for Statistics and Mathematics IN (Details)
  • Institute for Finance, Banking and Insurance IN (Details)

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Abstract (German)

Agency ratings express opinions about the creditworthiness. The recent financial crisis have fueled the debate about the role and accuracy of agency ratings, strongly suggesting to employ market information for assessing obligor credit- worthiness. In this project we investigate the feasibility of using Credit Default Swap (CDS) spreads for the validation and estimation of Market Implied Ratings (MIR). Our contibu- tions are threefold: Firstly, we analyze the timing of the raters in comparison to the MIRs (lead-lag relationship). Secondly, we discuss the additional infor- mation value of MIRs in comparison to agency ratings. Finally, the a consensus rating from different ratings is derived.


Abstract (English)

Agency ratings express opinions about the creditworthiness. The recent financial crisis have fueled the debate about the role and accuracy of agency ratings, strongly suggesting to employ market information for assessing obligor credit- worthiness. In this project we investigate the feasibility of using Credit Default Swap (CDS) spreads for the validation and estimation of Market Implied Ratings (MIR). Our contibu- tions are threefold: Firstly, we analyze the timing of the raters in comparison to the MIRs (lead-lag relationship). Secondly, we discuss the additional infor- mation value of MIRs in comparison to agency ratings. Finally, the a consensus rating from different ratings is derived.

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