The Credit Research Initiative (CRI) is a non-profit undertaking by the Risk Management Institute at NUS, and seeks to promote research and development in the critical area of credit risk. The foundation of the CRI is the probability of default (PD) model which has been developed using a database of over 60,000 listed firms in Asia Pacific, North America, Europe, Latin America, the Middle East and Africa. This web portal presents the outputs from this model, including daily updated PDs for individual firms in the aforementioned regions and aggregate PDs for different economies and sectors. Future phases of this initiative will expand our coverage to include the remainder of the global economy.
This non-profit initiative was conceptualized by Professor Jin-Chuan Duan in March 2009. It takes a "public good" approach to credit rating with the goal of keeping the PD model current, evolutionary and organic, and functions like a "selective Wikipedia." RMI announced the CRI in July 2009 and started releasing results from its PD model in July 2010 at its fourth Annual Risk Management Conference. An updated presentation on the CRI is available here.
This website serves as the information centre for the CRI and will be updated on a daily basis to demonstrate its operational feasibility and ensure the relevance of its contents.
The primary objective of the CRI is to advance the state-of-the-art in credit risk analytics and to disseminate assessments of credit quality for exchange-listed firms around the globe on a timely basis and free of charge. The CRI initiative challenges the current for-profit credit rating business model and is premised upon the concept of credit ratings as a "public good."
The ultimate objective of the CRI is to
- Advance scientifically sound credit rating/scoring methodologies.
- Provide a not-for-profit alternative to ratings on listed firms around the world.
- Promote NUS-RMI as a global credit risk research center.
A public good
The main premise of the CRI is the recognition that credit ratings bear the characteristics of a "public good." Financial market participants need reliable, transparent and independent assessments of creditworthiness of issuing parties. Credit ratings are therefore better viewed as an infrastructure matter, much like roads, air traffic control and the public education system. The CRI introduces a new approach by making credit information and knowledge widely available to users in the form of a public good. With a public good alternative in place, the for-profit business model of the Big Three credit rating agencies and many domestic rating agencies may be meaningfully counterbalanced.
Tapping the global research pool
In developing the CRI model, the global research pool is tapped by inviting external research teams to contribute to this initiative. This process can be seen as a "selective Wikipedia" and will allow the model to remain current, evolutionary and organic, responding to continual suggestions and/or challenges. To support the "selective Wikipedia" approach RMI builds and maintains the rating research and production infrastructure that are necessary to conduct meaningful research. Furthermore, being a non-profit organization, researchers will be able to keep their intellectual property. The selection of the underlying default prediction model is based upon commonly accepted scientific principles.
Non-proprietary and completely transparent
Being a non-profit alternative to traditional credit ratings, RMI's approach is designed to be non-proprietary and completely transparent. Accordingly, the PD model adopted by the CRI is documented in a technical report. The CRI also takes its education function and knowledge transfer role seriously. Users are welcome to adopt the CRI model in full or in part for various research or commercial purposes without having to worry about infringing intellectual property rights. Users can learn how the PD model works at an intuitive level via an easy-to-apply calculator function on the web portal. The CRI also aims to elevate the availability of credit information for listed companies around the world. Furthermore, in contrast to typically broad classes of letter based ratings, the CRI produces more granular credit information via PDs.
A scientific pursuit
Finally, as the CRI is intended to be a scientific pursuit, RMI does not have the intention to apply for any officially sanctioned credit rating agency status. Being an officially sanctioned credit rating agency would add regulatory and bureaucratic overhead to the CRI, greatly increasing operational costs and impeding the scientific progress that can be made.
For a full exposition of the conceptual framework of the CRI, see Duan and Van Laere (2012).
Coverage of results
Under the CRI coverage there are 22 economies in Asia-Pacific: Australia, Bangladesh, China, Hong Kong, Indonesia, India, Japan, Kazakhstan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, Vietnam, New Zealand, Cambodia, Macau, Mongolia and Papua New Guinea. The 3 economies in North America are: Bermuda, Canada and the United States. Europe currently includes 42 economies: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Macedonia, Malta, Netherlands, Norway, Poland, Portugal, Romania, Russian, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom, Ukraine, Faeroe Island, Gibraltar, Guernsey, Isle Of Man, Jersey, Liechtenstein and Monaco. The 18 economies in Latin America are: Argentina, Brazil, Columbia, Chile, Jamaica, Mexico, Peru, Venezuela, Bahamas, Belize, Cayman Islands, Curacao, Dominican Republic, Falkland Islands, Panama, Puerto Rico, Virgin Islands and Virgin Islands, British. The 11 economies in Middle East are: Bahrain, Israel, Jordan, Kuwait, Oman, Saudi Arabia, United Arab Emirates, Azerbaijan, Iraq, Qatar and Sudan. The 14 countries in Africa are: Angola, Egypt, Ghana, Morocco, Nigeria, South Africa, Gabon, Mauritius, Mozambique, Namibia, Sierra Leone, Tanzania, United Republic of, Togo and Zambia.
In addition to individual company PDs, aggregate PDs on economy and industry level are also made available. Through this web portal, the PDs for over 60,000 firms are available for users who can give evidence of their professional qualifications to ensure that they will not misuse the data. Global access can be requested here. General users without global access are restricted to a list of 3,000 firms and access is automatically granted by filling out the form here. A detailed description of how the 3,000 companies were chosen is available here.
The CRI seeks to continually expand its coverage over time. There are usually three instances in which the CRI coverage of economies increases; 1) when a new economy’s stock exchange is added to the CRI system, (e.g., Oman, Jamaica and Bangladesh were added to the Emerging Markets Group in the November 2014 calibration), 2) when an existing firm in sample changes its domicile to an economy outside the CRI coverage, (e.g., Ghana has been covered by the CRI since May 2014 after a firm called Geodrill Limited was redomiciled from Isle of Man to Ghana on 6 May 2014 according to our data provider) and 3) when a firm with a new domicile goes public in an existing stock exchange.
Approach to research
The RMI Credit Research Initiative adopts an innovative approach to research seldom used in finance and economics by inviting external teams to join in our efforts in a "selective Wikipedia" approach.
RMI has assembled a research team of around 35 people, led by Prof Jin-Chuan Duan and initially assisted by Dr Oliver Chen, to build up the research and implementation infrastructure at RMI. The initiative builds on a proprietary database that currently covers data on over 90,000 listed companies globally, including delisted ones. This initiative is a collective effort and a call for research participation allows external research teams to join RMI in this project. External teams are welcome to visit RMI for a period of a month or more, during which they can test their models and methodologies on our extensive database.
RMI invites more researchers to take part in this effort. Suggestions and challenges to RMI's adopted PD model are always welcome. RMI will invite individuals or groups to visit RMI to test out any reasonable proposals. A sound PD model would not be possible without extensive and high-quality financial data. RMI welcomes data contributions or concrete suggestions to improve its current database.
The current PD model and associated results are released as a benchmark for all of the modelling teams, current and future. A technical paper describing the results is available here. The academic paper by Duan, Sun and Wang (2012) on which the current PD model is based is published in the Journal of Econometrics and is available here.
|July 2009||The Credit Research Initiative was announced at the Third Annual Risk Management Conference.|
|July 2010||The CRI began to release daily updated probabilities of default (PDs), with horizons ranging from one month to two years ahead, for over 17,000 exchange-listed companies across 12 Asia-Pacific economies at the Fourth Annual Risk Management Conference. The presentation slides given by Professor Jin Chuan Duan at that conference are available here.|
|November 2010||Coverage was expanded to include North America, increasing daily PD coverage to 22,000 listed companies in US and Asia.|
|April 2011||Coverage was expanded to include Western Europe, increasing coverage to over 34,000
active, exchange-listed firms in 30 economies in Asia-Pacific (12), North America (2) and Europe
(16). Including delisted companies, the CRI covers around 50,000 firms in these 30 economies.
|July 2011||First issue of the annual Global Credit Review was released, providing information on credit markets and state-of-the-art developments in credit rating methodologies.|
|August 2011||First issue of quarterly publication Quarterly Credit Report which provides market commentary relating market events and trends to the PDs output by the CRI.|
|October 2011||First issue of weekly publication Weekly Credit Brief which summarizes and comments on important market and regulatory developments.|
|July 2012||Coverage was expanded to include Latin America and the rest of the eurozone. Increasing
coverage to over 35,000 active, exchange-listed firms in 44 economies in Asia-Pacific (12), North
America (2), Europe (23) and Latin America (7). Of these, over 28,000 firms have sufficient data to
release daily updated PDs.
Launch of the Corporate Vulnerability Index (CVI). This series of indices are "bottom-up" measures of the corporate credit market.
|August 2012||Coverage was expanded to include Vietnam and New Zealand to increase the number of economies in the Asia-Pacific region to 14. Including delisted companies, the CRI covers around 53,000 firms in these 46 economies.|
|December 2012||RMI Global Coverage: increased coverage to 60,400 listed firms in 106 economies.|
|March 2013||Bloomberg and Cbonds start carrying the CVI. Bloomberg Terminal users can access the CVI by typing RMII and CBonds subscribers can access the CVI here.|
|April 2013||Extension of the default forecast horizon from two to five years. This extension required a change in the parameterization of the model and a change in the parameter estimation methodology, detailed here.|
|August 2013||Expansion of the Corporate Vulnerability Index (CVI) to Denmark, Norway, Sweden, Australia and Taiwan.|
|December 2013||Expansion of the Corporate Vulnerability Index (CVI) to Malaysia, Philippines, Thailand and Vietnam.|
|July 2014||Launch of the Actuarial Spread as a new perspective on credit risk and an alternative measure using RMI probabilities of default for all listed firms under its CRI coverage. This PD based component of CDS spreads is a measure of default risk that summarizes the information embedded in the term structure of physical PD. It is computed similar to CDS spreads and precisely takes into account all aspects of standard CDS contracts. In short, it is the premium rate that purely reflects the actuarial value of default protection. The Actuarial Spread has a coverage of over 60,000 firms in 106 economies and is updated on a daily basis.|
|October 2014||Expansion of the Corporate Vulnerability Index (CVI) to Indonesia, Israel, Finland, Greece, Switzerland and Turkey|
|November 2014||The CRI coverage was expanded to include firms in Oman, Jamaica and Bangladesh to increase the number of economies globally to 110.|