Forecasting probabilities of default based on macro-adjusted historical rating migration matrices
KeywordsProbability of default ; Forecasting probabilities of default ; Point in time ; Through the cycle ; Migration matrices ; Merton JD model ; Vasicek ; IFRS ; IFRS 9 ; Forward looking ; Stages ; GDP ; Inflation
Forward Looking Probabilities of Default remain a significant research topic not only for academics but also for Financial Institutions because of its contribution to the capital adequacy of Financial Institutions. This thesis presents a methodology of Forecasting Probabilities of Default, based on macro – adjusted historical rating matrices, motivated both by International Literature which is associated with Probabilities of Default and the introduction of International Financial Reporting Standard 9 (IFRS 9), which was entered into force from 1st January of 2018, in Greece. For this purpose, we examined some macroeconomic variables aiming to detect which of them are related with corporate default rates. As a result of this research, GDP, Inflation and Unemployment Rate seem to be significantly associated with corporate default rates. Taking into consideration the expected future values of these macroeconomic variables, based upon the estimation that ECB does, we explicitly presented our methodological approach.