Banks could achieve substantial improvements of their portfolio credit risk assessment by estimating rating transition matrices within a time-continuous Markov model, thereby using continuous-time rating transitions provided by internal rating systems instead of discrete-time rating information....

We model credit rating histories as continuous-time discrete-state Markov processes. Infrequent monitoring of the debtors' solvency will result in erroneous observations of the rating transition times, and consequently in biased parameter estimates. We develop a score test against such...

Banks could achieve substantial improvements of their portfolio credit risk assessment by estimating rating transition matrices within a time-continuous Markov model, thereby using continuous-time rating transitions provided by internal rating systems instead of discrete-time rating information....