Empirical Transition Matrix

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:

• The Cohort Estimator
• The Aalen-Johansen Estimator

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• Withdrawn Ratings

Open Source Implementations

• https://github.com/open-risk/transitionMatrix

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