IFRS 9 and CECL Credit Risk Modelling and Validation by Tiziano Bellini;

Author:Tiziano Bellini;
Language: eng
Format: epub
ISBN: 9780128149416
Publisher: Elsevier Ltd.
Published: 2019-01-14T16:00:00+00:00

Figure 3.28 Structural model default threshold compared to rating bands.

The cumulative probability associated to move from rating class j to w can be represented as follows:

(3.31)

where indicates a rating class threshold. Few manipulations of Equation (3.31) allow us to highlight the next relationship:

(3.32)

One may consider the normalised creditworthiness index as a representation of by deriving the following:

(3.33)

Therefore for new projected values of , one may expect new rating bands.

Example 3.6.3 shows how to translate the above-detailed framework in practice.

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