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Review of Quantitative Finance and Accounting

, Volume 27, Issue 3, pp 311–340 | Cite as

An integrated multi-model credit rating system for private firms

  • Giovanni Butera
  • Robert Faff
Article

Abstract

This paper presents a integrated credit risk modelling approach for private firms which fulfil 2001 Basel Accord requirements in the case of the adoption of the foundation approach. Our model comprises: (a) a bottom-up technique to initially assess the through-the-cycle one-year Probability of Default (PD) and (b) a top-down approach to refine and calibrate this historical PD in a forward-looking credit risk assessment based on next year’s economic outlook. We present findings from applying this model to a large sample of client firms of the Bank of Rome.

Keywords

Credit risk Integrated model Probability of default Macroeconomic correction 

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Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  1. 1.Moody’s KMVLondonUnited Kingdom
  2. 2.Department of Accounting and FinanceMonash UniversityClayton VicAustralia

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