6 Historical Average Transition Matrix

The historical Transition Matrix is generated using long-term averages and can be based on rating scales or DPD bands. The last column of this matrix is the default probability also called the long-term default frequency.

The Historical Transition Matrix Run is used to compute the average Transition Matrix for various portfolios or segments based on the historical data available within the application. The Run can be segregated into two functional steps:

1. Transpose the historical data between any two dates into a movement matrix.
2. Look up the movement matrix across multiple dates to compute the Average Transition Matrix.