Quotation Eksi-Altay, Zehra, Frey, Rüdiger. 2014. Modeling Sovereign Credit Risk under Partial-information. Bachelier Finance Society 8th World Congress, Brussels, Belgien, 02.06-06.06.


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Abstract

In this study we model the dynamics of sovereign credit spreads. Specifically, we interpret credit spreads as the noisy observations of some state process which represents the financial strength of the sovereigns under consideration. This naturally gives rise to a partial-information setting in which, the default history of the sovereigns constitutes an additional piece of information. In order to incorporate that information in the analysis, we extend the estimation methodology given in Elliot (1993) and obtain an EM algorithm for the setting where the state variable follows a Markov chain observed via diffusive and point processes information. We test the speed, efficiency and accuracy of the algorithm by running a simulation analysis.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Poster presented at an academic conference or symposium
Language English
Title Modeling Sovereign Credit Risk under Partial-information
Event Bachelier Finance Society 8th World Congress
Date 02.06-06.06
Location Brussels
Country Belgium
Year 2014

Associations

People
Eksi-Altay, Zehra (Details)
Frey, Rüdiger (Details)
Organization
Institute for Statistics and Mathematics IN (Details)
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