Financial Econometrics and Empirical Market Microstructure

System of Models and Synergy of Rating Estimations

Previously we considered the capabilities which were given to us by rating mappings and models. Later we will discuss the synergy of these approaches as instruments of the Joint Rating Environment system (JRE-system). Such a system may be used for risk management in commercial banks; its main components for financial institutions are presented in Fig. 4.

The main part of such a system is the correspondence between rating scales, including the connection with internal ratings. They provide the opportunity to compare different ratings, as well as to use a comparable estimation of ratings received by several models. The synergy of such estimations gives a basic scale by independent risk weightings.

The system of models brings to the IRB Approach some possibilities, among which there may indications such as


A basic scale established for the development and practical usage of econometric rating models within the IRB-approach for Russian and international rating agencies.

• Rating scale comparison methods defined for different agencies including exter­nal and internal rating reconciliation.

• Rating estimation forecasting approach and banking risk measurement dependent on internal and external factors.

• Rating forecasting for financial and non-financial companies which have no rating.

• Implementation of an econometric modeling system which requires:

- Structured databases (data warehouse).

- Support for all life cycle stages of models.

- Monitoring, data gathering and the integration problem solution.

Of course such systems may be constructed for all types of entity, which were indicated at the specified risk management system according Basel II (Basel 2004, 2010). The details should be discussed for every bank or regulator separately. The discussion of these details is beyond the scope of this paper and may be done later.

Подпись: Conclusion We considered some methods of rating system construction, including a comparison of different rating estimates and modeling ratings for unrated entities. The mapping of rating scales was introduced as the foundation for the comparison of rating scales using a distance method. We proposed this method for all the international and national agencies, which were recognized


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