A dependent hidden Markov model of credit quality
type: Item
instance of: scholarly article
title: A dependent hidden Markov model of credit quality
zbMATH Open document ID: 1251.91067
DOI: 10.1155/2012/719237
author: Małgorzata Wiktoria Korolkiewicz
published in: International Journal of Stochastic Analysis
publication date: 2012-09-06T00:00:00Z
review text: Summary: 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.
Mathematics Subject Classification ID: 91G40
Mathematics Subject Classification ID: 60J05
zbMATH DE Number: 6078214
Wikidata QID: Q58689582
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2012/719237
OpenAlex ID: W2123316294
cites work: A coupled Markov chain approach to credit risk modeling
cites work: A hidden Markov model of credit quality
cites work: Hierarchical Monte Carlo methods for fractal random fields
description: scientific article; zbMATH DE number 6078214