Credit risk and incomplete information: filtering and EM parameter estimation.

We consider a reduced-form credit risk model where default intensities and interest rate are functions of a not fully observable Markovian factor process, thereby introducing an information-driven default contagion effect among defaults of different issuers. We determine arbitrage-free prices of /OTC/ products coherently with information from the financial market, in particular yields and credit spreads and this can be accomplished via a filtering approach coupled with an EM-algorithm for parameter estimation.