A Country Credit Rating Model for Emerging Countries Using Independent Component Analysis (ICA)

The central objective of this research is to study the importance of country risk issue, contry credit rating industry and its foundations, and eventually to develop a transparent, consistent and stable country risk rating model. To gain this purpose, tenty three financial and economical variables based on relevant theories and previous researches will be selected and analyzed through "Independent Component Analysis (ICA)" method which is an extension to "Priccipal Component Analysis (PCA)" classic method. Finally eight variables will be incorporated in the econometrics model. This model has the ability to justify mire than 90% of the variance in country credit ratings (based on the results provided by Fitch and S&P institutes). surveying the results shows that while the predicion ability of the model for normal variances in credit ratings are quite acceptable, for severe variances and immediate shocks, variance in the results is milder than the reality.

Keywords:

country risk , credit risk , independent comppnent analysis , principal component analysis