Speaker--------------------------------------------------------------------------------------------------------------------
WOLFGANG J. RUNGGALDIER, University of Padova


Title of the talk-----------------------------------------------------------------------------------------------------------
CREDIT RISK AND INCOMPLETE INFORMATION:
FILTERING AND EM PARAMETER ESTIMATION



Abstract---------------------------------------------------------------------------------------------------------------------

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. The 
joint work with Claudio Fontana.

Reference:
Fontana, C. and W.J. Runggaldier, "Credit risk and incomplete information: filtering and
EM parameter estimation," International Journal of Theoretical and Applied Finance, 13 
(2010) No. 1, pp. 683-715.