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Spatial Interaction Model of Credit Risk Contagion in the CRT Market

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  • Tingqiang Chen
  • Xindan Li
  • Jining Wang

Abstract

In this paper, we introduce an entropy spatial model of credit risk contagion in the credit risk transfer (CRT) market that considers the effects of spatial, industry-specific, regional financial and individual factors of the CRT market on credit risk contagion. We use numerical simulation to describe the influence and active mechanism of the spatial distance and transmission capacity between banks and investors in the CRT market. We also assess bank asset quality and credit risk transfer capability, as well as investor asset scale and risk preference level, bank financial development level, investors in the area and the weight of investors in the area relative to credit risk contagion. This model contributes to the explicit formalization of the connection between probability and spatial factors and provides new ideas and a theoretical framework for considering credit risk contagion in a spatial context, which has great relevance for credit risk management. Copyright Springer Science+Business Media New York 2015

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  • Tingqiang Chen & Xindan Li & Jining Wang, 2015. "Spatial Interaction Model of Credit Risk Contagion in the CRT Market," Computational Economics, Springer;Society for Computational Economics, vol. 46(4), pages 519-537, December.
    • Handle: RePEc:kap:compec:v:46:y:2015:i:4:p:519-537
    DOI: 10.1007/s10614-014-9475-2
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    8. Hossein Dastkhan & Naser Shams Gharneh, 2019. "Simulation of Contagion in the Stock Markets Using Cross-Shareholding Networks: A Case from an Emerging Market," Computational Economics, Springer;Society for Computational Economics, vol. 53(3), pages 1071-1101, March.
    9. Shouwei Li & Shihang Wen, 2017. "Multiplex Networks of the Guarantee Market: Evidence from China," Complexity, Hindawi, vol. 2017, pages 1-7, July.
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    11. Li, Shouwei & Sui, Xin, 2016. "Contagion risk in endogenous financial networks," Chaos, Solitons & Fractals, Elsevier, vol. 91(C), pages 591-597.

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