easy · FRM Part 1 Valuation and Risk Models
In a transition matrix, the values located on the main diagonal (from top-left to bottom-right) represent:
- The probability of an obligor's rating remaining unchanged over the period.
- The probability of a two-notch upgrade occurring within the period.
- The average recovery rate assigned to obligors within each credit rating class.
- The probability that an obligor defaults on its obligations sometime within the period.
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