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Contingent Claims Analysis And The Inter-Sector Transmission Of Credit Risk

In: CNB Financial Stability Report 2011/2012

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  • Miroslav Plasil
  • Ivana Kubicova

Abstract

The purpose of this article is to contribute to the modelling of the cross-sectional dimension of systemic risk. First, the network of financial linkages in the Czech economy is mapped and then a model of inter-sector transmission of financial contagion is presented. The model is used to quantify the results of two different risk scenarios. It is demonstrated that mutual exposures can amplify the consequences of negative shocks at times of increased financial stress. The magnitude of those consequences depends on which sector is primarily hit by the shock.

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Bibliographic Info

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This chapter was published in: Miroslav Plasil & Ivana Kubicova CNB Financial Stability Report 2011/2012, , chapter Thematic Article 4, pages 129-139, 2012.

This item is provided by Czech National Bank, Research Department in its series Occasional Publications - Chapters in Edited Volumes with number fsr1112/4.

Handle: RePEc:cnb:ocpubc:fsr1112/4

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  1. Shin, Hyun Song, 2008. "Risk and liquidity in a system context," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 315-329, July.
  2. Michael Gapen & Dale Gray & Cheng Hoon Lim & Yingbin Xiao, 2008. "Measuring and Analyzing Sovereign Risk with Contingent Claims," IMF Staff Papers, Palgrave Macmillan, vol. 55(1), pages 109-148, April.
  3. Jakub Seidler, 2008. "Implied Market Loss Given Default: structural-model approach," Working Papers IES 2008/26, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2008.
  4. Dale F. Gray & Robert C. Merton & Zvi Bodie, 2007. "New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability," NBER Working Papers 13607, National Bureau of Economic Research, Inc.
  5. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Kavonius, Ilja Kristian & Castrén, Olli, 2009. "Balance Sheet Interlinkages and Macro-Financial Risk Analysis in the Euro Area," Working Paper Series 1124, European Central Bank.
  7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  8. Nuno Silva, 2010. "Inter-Sector Relations in the Portuguese Economy: an Application of Contingent," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  9. Groenen, Patrick J. F. & Franses, Philip Hans, 2000. "Visualizing time-varying correlations across stock markets," Journal of Empirical Finance, Elsevier, vol. 7(2), pages 155-172, August.
  10. Jan Frait & Zlatuse Komarkova, 2011. "Financial Stability, Systemic Risk and Macroprudential Policy," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2010/2011, chapter 0, pages 96-111 Czech National Bank, Research Department.
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