Quotation Frey, Rüdiger, Runggaldier, Wolfgang. 2010. Pricing Credit Derivatives under Incomplete Information: a Nonlinear-Filtering Approach. Finance and Stochastics 14 (4): 495-526.




This paper considers a general reduced form pricing model for credit derivatives where default intensities are driven by some factor process X. The process X is not directly observable for investors in secondary markets; rather, their information set consists of the default history and of noisy price observation for traded credit products. In this context the pricing of credit derivatives leads to a challenging nonlinear filtering problem. We provide recursive updating rules for the filter, derive a finite dimensional filter for the case where X follows a finite state Markov chain and propose a novel particle filtering algorithm. A numerical case study illustrates the properties of the proposed algorithms.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Finance and Stochastics
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, VW-B, WH-B
Language English
Title Pricing Credit Derivatives under Incomplete Information: a Nonlinear-Filtering Approach
Volume 14
Number 4
Year 2010
Page from 495
Page to 526
URL http://www.math.uni-leipzig.de/~frey/frey-rungg-credit-filtering-revised.pdf


Frey, Rüdiger (Details)
Runggaldier, Wolfgang
Institute for Statistics and Mathematics IN (Details)
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