Non-Parametric Analysis of Rating Transition and Default Data

Peter Fledelius, David Lando and Jens Perch Nielsen

Volume 2, Number 2, Second Quarter 2004

Non-parametric analysis of rating transition intensities is a powerful way of visualizing such effects and is therefore useful both for quickly understanding the behavior of a rating system and for exploring data before setting up a full statistical model. In this paper we illustrate the use of non-parametric and smoothing methods for analyzing rating transitions by showing how the time spent in a particular rating class and the direction of the move into this class influence transition intensities away from the class.