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On the estimation and calibration of affine factor models

Thorsten Schmidt
Tirsdag, 30 april, 2013, at 14:15-15:00, in Koll. G3 (1532-218)

Factor models are frequently used for financial modeling. In credit risk, they are a main tool of capturing dynamic dependence, and their estimation and calibration poses a difficult problem. We approach the estimation via a nonlinear filtering approach. The filtering problem is non-standard as observations consist of diffusive and point-process observations. The EM-algorithm allows to dynamically estimate the background factor process.

An illustration with data from the iTraxx over a period of five years shows a surprisingly good fit throughout the whole period.

Organiseret af: Thiele Centre and CREATES
Kontaktperson: Søren Asmussen