Journal of Credit Risk

Risk.net

Granularity in a qualitative factor model

Christian Gourieroux, Alain Monfort

ABSTRACT

This paper provides a unified setting for factor models applied to panels of qualitative observations. This setting includes as special cases the single risk factor model and its multiple factor extensions used in credit risk analysis, the stochastic migration models used for rating dynamics and the factor models for prospective mortality tables. The behavior of these models when the cross-sectional dimension is large is considered and granularity adjustments for the maximum-likelihood estimators of the factor sensitivities are derived. These steps are necessary in order to analyze the effect of estimation risk on measures of credit portfolio risk. The methodology is illustrated by a Monte Carlo study of the finite sample properties of the estimators.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here