easy · FRM Part 2 Credit Risk
If a transition matrix is 'Through-the-Cycle' (TTC), what is the expected behavior of the ratings when the economy enters a temporary boom?
- Most obligors should be immediately upgraded to reflect the better environment.
- The ratings should remain relatively stable with minimal migrations.
- The matrix diagonal will drop to zero as everyone moves to higher grades.
- The default probabilities within each grade will remain perfectly constant.
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