Empirical Transition Matrix
From Open Risk Manual
Contents
Definition
An Empirical Transition Matrix is a Transition Matrix that is produced directly via a process of statistical estimation from observed data.
Estimators
There is a variety of estimation methods with trade-offs in simplicity / accuracy:
Issues and Challenges
Estimation of transition rates can be complicated if the underlying phenomena or the data collection process involve additional elements that interfere with the estimation method.
- Competing risks (prepayments)
- Withdrawn Ratings
References
