01902cas a2200253 a 4500 AALejournalIMF009717 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451868531 1018-5941 BD-DhAAL BD-DhAAL Souto, Marcos. Stochastic Volatilities and Correlations, Extreme Values and Modeling the Macroeconomic Environment, Under Which Brazilian Banks Operate / Marcos Souto, Theodore Barnhill. Washington, D.C. : International Monetary Fund, 2007. 1 online resource (52 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Using monthly data for a set of variables, we examine the out-of-sample performance of various variance/covariance models and find that no model has consistently outperformed the others. We also show that it is possible to increase the probability mass toward the tails and to match reasonably well the historical evolution of volatilities by changing a decay factor appropriately. Finally, we implement a simple stochastic volatility model and simulate the credit transition matrix for two large Brazilian banks and show that this methodology has the potential to improve simulated transition probabilities as compared to the constant volatility case. In particular, it can shift CTM probabilities towards lower credit risk categories. Mode of access: Internet Barnhill, Theodore. IMF Working Papers; Working Paper ; No. 2007/290 Full text available on IMF http://elibrary.imf.org/view/journals/001/2007/290/001.2007.issue-290-en.xml IMF e-Library