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Urn-based models for dependent credit risks and their calibration through EM algorithm

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  • Riccardo Gusso

    ()
    (Department of Applied Mathematics, University of Venice)

  • Uwe Schmock

    ()
    (Institute for Mathematical Methods in Economics, Vienna University of Technology)

Abstract

In this contribution we analyze two models for the joint probability of defaults of dependent credit risks that are based on a generalisation of Polya urn scheme. In particular we focus our attention on the problems related to the maximum likelihood estimation of the parameters involved, and to this purpose we introduce an approach based on the use of the Expectation-Maximization algorithm. We show how to implement it in this context, and then we analyze the results obtained, comparing them with results obtained by other approaches.

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File URL: http://virgo.unive.it/wpideas/storage/2008wp163.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Department of Applied Mathematics, Università Ca' Foscari Venezia in its series Working Papers with number 163.

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Length: 28 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:vnm:wpaper:163

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