Urn-based models for dependent credit risks and their calibration through EM algorithm

Riccardo Gusso and Uwe Schmock ()
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Uwe Schmock: Institute for Mathematical Methods in Economics, Vienna University of Technology

No 163, Working Papers from Department of Applied Mathematics, Università Ca' Foscari Venezia

Abstract: In this contribution we analyze two models for the joint probability of defaults of dependent credit risks that are based on a generalisation of Polya urn scheme. In particular we focus our attention on the problems related to the maximum likelihood estimation of the parameters involved, and to this purpose we introduce an approach based on the use of the Expectation-Maximization algorithm. We show how to implement it in this context, and then we analyze the results obtained, comparing them with results obtained by other approaches.

JEL-codes: C13 C16 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2008-04
New Economics Papers: this item is included in nep-ecm and nep-rmg
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