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Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity
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Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity

by Tomasz R. Bielecki, Damiano Brigo, Frédéric Patras
February 2011
Intermediate to advanced content levelIntermediate to advanced
768 pages
22h 39m
English
Bloomberg Press
Content preview from Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity

Chapter 7

Filtering and Incomplete Information in Credit Risk

Rüdiger Frey

Department of Mathematics, Universität Leipzig

Thorsten Schmidt

TU Chemnitz

This chapter studies structural and reduced-form credit risk models under incomplete information using techniques from stochastic filtering. We start with a brief introduction to stochastic filtering. Next we cover the pricing of corporate securities (debt and equity) in structural models under partial information. Furthermore, we study the construction of a dynamic reduced-form credit risk model via the innovations approach to nonlinear filtering, and we discuss pricing, calibration, and hedging in that context. The chapter closes with a number of numerical case studies related to model calibration ...

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Publisher Resources

ISBN: 9781118003831Purchase book