Transition matrices - Cumulative Default Probabilities
Hi, I still do not understand how cumulative default probabilities were being calculated in the screenshot. Is there an example/practice problem that shows how this gets calculated?
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Hi, I still do not understand how cumulative default probabilities were being calculated in the screenshot. Is there an example/practice problem that shows how this gets calculated?
Comments
It suggests to re-create this matrix n times for n number of years into the future.
For example, the second year matrix will have a value for A-to-A that is the sum of the probabilities of A-to-A-to-A, A-to-B-to-A, A-to-C-to-A, etc.
This is a recent addition to syllabus, so there will not be past exam problems on it.
If this gets asked in the exam, it will be for a simplified setting and not many years into the future.