Frey, Rüdiger, Runggaldier, Wolfgang. 2010. Pricing Credit Derivatives under Incomplete Information:
a Nonlinear-Filtering Approach. Finance and Stochastics 14 (4): 495-526.
BibTeX
Abstract
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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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 |
Associations
- People
- Frey, Rüdiger (Details)
- External
- Runggaldier, Wolfgang
- Organization
- Institute for Statistics and Mathematics IN (Details)