One-year transition matrix

Initial
Rating at year-end
Rating
AAA AA A BBB BB B
AAA 90.81% 8.33% 0.68% 0.06% 0.12% 0.00%
AA 0.70% 90.65% 7.79% 0.64% 0.06% 0.14%
A 0.09% 2.27% 91.05% 5.52% 0.74% 0.26%
BBB 0.02% 0.33% 5.95% 86.93% 5.30% 1.17%
BB 0.03% 0.14% 0.67% 7.73% 80.53% 8.84%
B 0.00% 0.11% 0.24% 0.43% 6.48% 83.46%
CCC 0.22% 0.00% 0.22% 1.30% 2.38% 11.24%

Each row corresponds to an initial rating.

Each column corresponds to a rating at the end of one year.
For example, from the table we see that there is a 5.95% chance
that a bond initially rated BBB will be rated A at the end of the year.
Each row sums to 100%.
CCC Default
0.00% 0.00%
0.02% 0.00%
0.01% 0.06%
0.12% 0.18%
1.00% 1.06%
4.07% 5.20%
64.86% 19.79%
 One-year transition matrix

Initial
Rating at year-end
Rating
AAA AA A BBB BB B
AAA 90.81% 8.33% 0.68% 0.06% 0.12% 0.00%
AA 0.70% 90.65% 7.79% 0.64% 0.06% 0.14%
A 0.09% 2.27% 91.05% 5.52% 0.74% 0.26%
BBB 0.02% 0.33% 5.95% 86.93% 5.30% 1.17%
BB 0.03% 0.14% 0.67% 7.73% 80.53% 8.84%
B 0.00% 0.11% 0.24% 0.43% 6.48% 83.46%
CCC 0.22% 0.00% 0.22% 1.30% 2.38% 11.24%

Possible $ values for BBB-rated bond:

Year-end Rating AAA AA A BBB BB B
Year-end Value 109.37 109.19 108.66 107.55 102.02 98.1

Standard deviation calculation for bond initially rated BBB

Probability New Probability Difference Probability

Year-end of bond weighted of value weighted difference
rating state value value from mean squared
AAA 0.02% $ 109.37 0.02 $ 2.28 0.0010
AA 0.33% $ 109.19 0.36 $ 2.10 0.0146
A 5.95% $ 108.66 6.47 $ 1.57 0.1471
BBB 86.93% $ 107.55 93.49 $ 0.46 0.1856
BB 5.30% $ 102.02 5.41 $ (5.07) 1.3612
B 1.17% $ 98.10 1.15 $ (8.99) 0.9452
CCC 0.12% $ 83.64 0.10 $ (23.45) 0.6598
Default 0.18% $ 51.13 0.09 $ (55.96) 5.6363
Mean= $ 107.09 107.09 Variance=
Standard deviation =

Values may differ slightly from CreditMetrics document due to rounding

 CCC Default
0.00% 0.00%
0.02% 0.00%
0.01% 0.06%
0.12% 0.18%
1.00% 1.06%
4.07% 5.20%
64.86% 19.79%

CCC Default
83.64 51.13 $ 107.09

Probability
weighted difference
squared
0.0010
0.0146
0.1471
0.1856
1.3612
0.9452
0.6598
5.6363
8.9508
$ 2.99

ument due to rounding

 Portfolio Value
Obligor #2 (single-A)
AAA AA A BBB BB
Obligor #1 (BBB) 106.59 106.49 106.30 105.64 103.15
AAA 109.37 215.96 215.86 215.67 215.01 212.52
AA 109.19 215.78 215.68 215.49 214.83 212.34
A 108.66 215.25 215.15 214.96 214.30 211.81
BBB 107.55 214.14 214.04 213.85 213.19 210.70
BB 102.02 208.61 208.51 208.32 207.66 205.17
B 98.1 204.69 204.59 204.40 203.74 201.25
CCC 83.64 190.23 190.13 189.94 189.28 186.79
Default 51.13 157.72 157.62 157.43 156.77 154.28

Note: The information in the table below is the same as the information in the three tables above and to the ri
is more convenient for the calculations. The table has 64 rows corresponding to the 8x8 possible combination

Scenarios Scenarios Probabilities

Obligor #1 Obligor #2 Portfolio Independent Correlated
Row Col BBB A Value Case Case
1 1 AAA AAA 215.96 0.00% 0.00%
1 2 AAA AA 215.86 0.00% 0.00%
1 3 AAA A 215.67 0.02% 0.02%
1 4 AAA BBB 215.01 0.00% 0.00%
1 5 AAA BB 212.52 0.00% 0.00%
1 6 AAA B 210.76 0.00% 0.00%
1 7 AAA CCC 198.08 0.00% 0.00%
1 8 AAA Default 160.50 0.00% 0.00%
2 1 AA AAA 215.78 0.00% 0.00%
2 2 AA AA 215.68 0.01% 0.04%
2 3 AA A 215.49 0.30% 0.29%
2 4 AA BBB 214.83 0.02% 0.00%
2 5 AA BB 212.34 0.00% 0.00%
2 6 AA B 210.58 0.00% 0.00%
2 7 AA CCC 197.90 0.00% 0.00%
2 8 AA Default 160.32 0.00% 0.00%
3 1 A AAA 215.25 0.01% 0.02%
3 2 A AA 215.15 0.14% 0.39%
3 3 A A 214.96 5.42% 5.44%
3 4 A BBB 214.30 0.33% 0.08%
3 5 A BB 211.81 0.04% 0.01%
3 6 A B 210.05 0.02% 0.00%
3 7 A CCC 197.37 0.00% 0.00%
3 8 A Default 159.79 0.00% 0.00%
4 1 BBB AAA 214.14 0.08% 0.07%
4 2 BBB AA 214.04 1.97% 1.81%
4 3 BBB A 213.85 79.15% 79.69%
4 4 BBB BBB 213.19 4.80% 4.55%
4 5 BBB BB 210.70 0.64% 0.57%
4 6 BBB B 208.94 0.23% 0.19%
4 7 BBB CCC 196.26 0.01% 0.01%
4 8 BBB Default 158.68 0.05% 0.04%
5 1 BB AAA 208.61 0.00% 0.00%
5 2 BB AA 208.51 0.12% 0.02%
5 3 BB A 208.32 4.83% 4.47%
5 4 BB BBB 207.66 0.29% 0.65%
5 5 BB BB 205.17 0.04% 0.11%
5 6 BB B 203.41 0.01% 0.04%
5 7 BB CCC 190.73 0.00% 0.00%
5 8 BB Default 153.15 0.00% 0.01%
6 1 B AAA 204.69 0.00% 0.00%
6 2 B AA 204.59 0.03% 0.00%
6 3 B A 204.40 1.07% 0.92%
6 4 B BBB 203.74 0.06% 0.18%
6 5 B BB 201.25 0.01% 0.04%
6 6 B B 199.49 0.00% 0.02%
6 7 B CCC 186.81 0.00% 0.00%
6 8 B Default 149.23 0.00% 0.00%
7 1 CCC AAA 190.23 0.00% 0.00%
7 2 CCC AA 190.13 0.00% 0.00%
7 3 CCC A 189.94 0.11% 0.09%
7 4 CCC BBB 189.28 0.01% 0.02%
7 5 CCC BB 186.79 0.00% 0.00%
7 6 CCC B 185.03 0.00% 0.00%
7 7 CCC CCC 172.35 0.00% 0.00%
7 8 CCC Default 134.77 0.00% 0.00%
8 1 Default AAA 157.72 0.00% 0.00%
8 2 Default AA 157.62 0.00% 0.00%
8 3 Default A 157.43 0.16% 0.13%
8 4 Default BBB 156.77 0.01% 0.04%
8 5 Default BB 154.28 0.00% 0.01%
8 6 Default B 152.52 0.00% 0.00%
8 7 Default CCC 139.84 0.00% 0.00%
8 8 Default Default 102.26 0.00% 0.00%

Sum 100.00% 100.00%

 Joint Distribution: Indep
(single-A) Obligor
B CCC Default AAA AA
101.39 88.71 51.13 Obligor #1 (BBB) 0.09% 2.27%
210.76 198.08 160.50 AAA 0.02% 0.00% 0.00%
210.58 197.90 160.32 AA 0.33% 0.00% 0.01%
210.05 197.37 159.79 A 5.95% 0.01% 0.14%
208.94 196.26 158.68 BBB 86.93% 0.08% 1.97%
203.41 190.73 153.15 BB 5.30% 0.00% 0.12%
199.49 186.81 149.23 B 1.17% 0.00% 0.03%
185.03 172.35 134.77 CCC 0.12% 0.00% 0.00%
152.52 139.84 102.26 Default 0.18% 0.00% 0.00%

the three tables above and to the right. The format below Here, each entry in the table is the produc
ing to the 8x8 possible combinations of ratings. marginal probabilities because the two rat
nt Distribution: Independent Case
Obligor #2 (single-A)
A BBB BB B CCC Default
91.05% 5.52% 0.74% 0.26% 0.01% 0.06% Obligor #1 (BBB)
0.02% 0.00% 0.00% 0.00% 0.00% 0.00% AAA 0.02%
0.30% 0.02% 0.00% 0.00% 0.00% 0.00% AA 0.33%
5.42% 0.33% 0.04% 0.02% 0.00% 0.00% A 5.95%
79.15% 4.80% 0.64% 0.23% 0.01% 0.05% BBB 86.93%
4.83% 0.29% 0.04% 0.01% 0.00% 0.00% BB 5.30%
1.07% 0.06% 0.01% 0.00% 0.00% 0.00% B 1.17%
0.11% 0.01% 0.00% 0.00% 0.00% 0.00% CCC 0.12%
0.16% 0.01% 0.00% 0.00% 0.00% 0.00% Default 0.18%

h entry in the table is the product of the corresponding row and column
probabilities because the two ratings are assumed independent.
 Joint Distribution: Correlated Case
Obligor #2 (single-A)
AAA AA A BBB BB B CCC Default
0.09% 2.27% 91.05% 5.52% 0.74% 0.26% 0.01% 0.06%
0.00% 0.00% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00%
0.00% 0.04% 0.29% 0.00% 0.00% 0.00% 0.00% 0.00%
0.02% 0.39% 5.44% 0.08% 0.01% 0.00% 0.00% 0.00%
0.07% 1.81% 79.69% 4.55% 0.57% 0.19% 0.01% 0.04%
0.00% 0.02% 4.47% 0.65% 0.11% 0.04% 0.00% 0.01%
0.00% 0.00% 0.92% 0.18% 0.04% 0.02% 0.00% 0.00%
0.00% 0.00% 0.09% 0.02% 0.00% 0.00% 0.00% 0.00%
0.00% 0.00% 0.13% 0.04% 0.01% 0.00% 0.00% 0.00%

The values in this table are from the CreditMetrics document. There is no
way to calculate the individual probabilities from the row and column sums.
(I modifed the values slightly to ensure correct row and column sums.)