Many financial institutions prefer to take longer-term views when assessing the risks of their credit portfolio. While forward-looking or Point-in-Time (PIT) parameters might be more reflective of the current economic environment, frequent updates may create fluctuations in risk measures.
Jimmy Huang, Associate Director of Portfolio Research at Moody’s Analytics will discuss two approaches that financial institutions can consider to estimate Through-the-Cycle (TTC) correlation parameters.
Average PIT measures across years to obtain a longer-term TTC average
Calibration of a TTC correlation measure that generates a default distribution in-line with the institution’s actual default distribution