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A Dependent Hidden Markov Model of Credit Quality
Author
Korolkiewicz, Małgorzata Wiktoria
Source
International Journal of Stochastic Analysis
Issue
Vol. 2012, Issue 2012 (31 Dec. 2012), pp.1-13, 13 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2012-08-13
Country of Publication
Egypt
No. of Pages
13
Main Subjects
Abstract EN
We propose a dependent hidden Markov model of credit quality.
We suppose that the "true" credit quality is not observed directly but only through noisy observations given by posted credit ratings.
The model is formulated in discrete time with a Markov chain observed in martingale noise, where "noise" terms of the state and observation processes are possibly dependent.
The model provides estimates for the state of the Markov chain governing the evolution of the credit rating process and the parameters of the model, where the latter are estimated using the EM algorithm.
The dependent dynamics allow for the so-called "rating momentum" discussed in the credit literature and also provide a convenient test of independence between the state and observation dynamics.
American Psychological Association (APA)
Korolkiewicz, Małgorzata Wiktoria. 2012. A Dependent Hidden Markov Model of Credit Quality. International Journal of Stochastic Analysis،Vol. 2012, no. 2012, pp.1-13.
https://search.emarefa.net/detail/BIM-493148
Modern Language Association (MLA)
Korolkiewicz, Małgorzata Wiktoria. A Dependent Hidden Markov Model of Credit Quality. International Journal of Stochastic Analysis No. 2012 (2012), pp.1-13.
https://search.emarefa.net/detail/BIM-493148
American Medical Association (AMA)
Korolkiewicz, Małgorzata Wiktoria. A Dependent Hidden Markov Model of Credit Quality. International Journal of Stochastic Analysis. 2012. Vol. 2012, no. 2012, pp.1-13.
https://search.emarefa.net/detail/BIM-493148
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-493148