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NEW QUESTION: 1
An assumption regarding the absence of ratings momentum is referred to as:
A. Ratings stability
B. Markov property
C. Herstatt risk
D. Time invariance
Choice 'c' is the correct answer. The Markov property is the assumption that there is no ratings momentum, and that transition probabilities are dependent only upon where the rating currently is and where it is going to.
Where it has come from, or what the past changes in ratings have been, have no effect on the transition probabilities. ('Herstatt risk' refers to settlement risk, and is irrelevant.)
NEW QUESTION: 2
NEW QUESTION: 3