Credit Risk And Incomplete Information: Filtering And Em Parameter Estimation
We consider a reduced-form credit risk model where default intensities and interest rate are functions of a not fully observable Markovian factor process, thereby introducing an information-driven default contagion effect among defaults of different issuers. We determine arbitrage-free prices of OTC products coherently with information from the financial market, in particular yields and credit spreads and this can be accomplished via a filtering approach coupled with an EM-algorithm for parameter estimation.
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Volume (Year): 13 (2010)
Issue (Month): 05 ()
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