Calibrating TTC PD to PiT PD
In one of my previous posts, it was shown that how one can obtain PiT PD from TTC PD using the Kalman filter. I came across an interesting alternative approach on Quantitative Finance. In particular, assuming that TTC PD estimates are already available at the portfolio level and rating levels, a forecast of the portfolio level PiT PD is all that required by the approach.
More concretely, under the approach, the PiT PD for rating i is given by the following equation: