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An integrated multi-model credit rating system for private firms

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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.

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Authors and Affiliations

  1. Moody’s KMV, 8–9 Well Court House, London, EC4M 9DN, United Kingdom

    Giovanni Butera

  2. Department of Accounting and Finance, Monash University, PO Box 11E, Clayton Vic, 3800, Australia

    Robert Faff

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  1. Giovanni Butera
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  2. Robert Faff
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Correspondence to Robert Faff.

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Butera, G., Faff, R. An integrated multi-model credit rating system for private firms. Rev Quant Finan Acc 27, 311–340 (2006). https://doi.org/10.1007/s11156-006-9434-7

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