Credibility Theory approach to Transition Matrices

This is an experimental approach to Transition Matrices, which focuses on the development of Through-The-Cycle Transition Matrices, using the Credibility Theory. The theory of Transition Matrices is wide and a unique right way, or methodology, in order to obtain suitable Transition Matrices in the form of PIT or TTC does not exist. After having computed the real-world transition matrices from a big set of bond data of multinational corporates with different time setting, this result are smoothed and a semi-linear credibility approach is applied to them in order to obtain a Through-the-Cycle measure. Various indices are also computed, such distance and direction. Some applications of TTCCred probabilities are presented in the final part of this dissertation, about bonds pricing (with Jarrow, Lando and Turnbull approach), Credit Default Swaps and Lifetime Expected Credit Losses.