Credit Risk Modeling Based On Coupled Markov Process

Credit risk as the debtor may default risk has always been plagued by financialinstitutions. sectors．After some financial crises such as Asian financial crisis，thecontagion effect of credit risk has attracted huge attention of financial marketregulators and financial institutions. Therefore, various types of credit risk modelshave been developed to measure the potential risk. And Credit rating as an importanttool to measure the credit risk of the debtor has been widely applied to a measure ofcredit risk and pricing credit derivatives.We develop a coupled Markov Model to describe the transfer process betweendifferent debtors credit rating in a credit portfolio, and we have found a generationfunction of the default distribution. We do not assume that the premise of the knowndistribution of the assets of the debtor, the estimated parameters of the model isobtained simply by credit transition probability matrix. At the same time, we use twokind of approximate method to estimate the debtor defaults distribution, and throughthe numerical simulation comparison, find conditions mean-variance method toestimate the results are pretty good.