View source for Point-in-time versus Through-the-cycle

== Point-in-time versus Through-the-cycle ==
[[Point-in-time]] versus [[Through-the-cycle]], two key design elements ([[Credit Rating Philosophy | ''philosophies'']]) of [[Credit Rating System | credit rating systems]] are compared and contrasted. So called ''hybrid'' systems may lie somewhere between the two designs.


{| class="wikitable"
|-
! Aspect !! Point-in-time !! Through-the-cycle
|-
| Who is applying which system || Financial firms || Rating agencies, Financial firms
|-
| What are the primary uses || Pricing, Portfolio Management, Stress Testing, IFRS 9 Reporting || Underwriting, Regulatory Capital
|-
| Which predictive variables are included ||  Both static / slowly varying and dynamic || Only static / slowly varying
|-
| What happens to the forecast PD in a downturn || Increases  || Remains the same
|-
| What happens to the rating in a downturn  || Deteriorates || Remains the same
|-
| What happens to the rank ordering of risks during downturn || Might change || Remains the same
|-
| How does it impact estimated risk capital for banks  || Volatile || Stable
|-
| Can rating cut-off be used to set business segmentation criteria or limits  || No || Yes
|-
| How is the PD correlated in time with credit spreads  || Some positive correlation || Little correlation
|-
| Is there a unique approach to obtain this design  || No ||  No
|-
| How can estimates be validated  || Comparison with realizations over short periods || Comparison with realizations over long periods
|}

== References ==  
<references />

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[[Category:Credit Rating System]]
[[Category:X versus Y]]