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Basel III Credit Rating Systems pp 155–181 Cite as

Expert Judgment-based Rating Assignment Process

  • Luisa Izzi ,
  • Gianluca Oricchio &
  • Laura Vitale  

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Part of the Palgrave Macmillan Finance and Capital Markets Series book series (FCMS)

Broadly speaking, a rating is an assessment, for a given time horizon, of an obligor’s ability to honor its contractual obligations. External agency ratings, as well as banks’ judgmental rating grades, are usually ordinal measures of credit risk (as opposed to, for example, KMV Moody’s ‘expected default frequencies’ — EDFs), which have been determined by taking into account all relevant available information (both quantitative and qualitative). The ordinality allows for the ranking of obligors in terms of relative riskiness. To quantify obligors’ credit risk, probabilities of default are estimated for each rating category; the riskier a rating category is, the higher its PD estimate should be.

  • Credit Risk
  • Parent Company
  • Negative Support
  • Legal Entity
  • Dividend Payout

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© 2012 Luisa Izzi, Gianluca Oricchio and Laura Vitale

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Izzi, L., Oricchio, G., Vitale, L. (2012). Expert Judgment-based Rating Assignment Process. In: Basel III Credit Rating Systems. Palgrave Macmillan Finance and Capital Markets Series. Palgrave Macmillan, London.

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