Using a multivariate Markov chain model for estimating credit risk : evidence from Taiwan

Dependence on credit ratings is an important issue for managing credit risk. This paper assesses credit risk using a multivariate Markov chain model that calculates dependence on credit ratings. We demonstrate the practical implementation of the proposed model using the rating data of 15 industries in Taiwan. Finally, our model is able to consider dependence structure to estimate credit risk. -- credit risk ; Basel capital accord ; multivariate Markov chain model ; credit value-at-risk