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Measuring the default risk of sovereign debt from the perspective of network

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  • Hongwei Chuang
  • Hwai-Chung Ho
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    Abstract

    Recently, there has been a growing interest in network research, especially in these fields of biology, computer science, and sociology. It is natural to address complex financial issues such as the European sovereign debt crisis from the perspective of network. In this article, we construct a network model according to the debt--credit relations instead of using the conventional methodology to measure the default risk. Based on the model, a risk index is examined using the quarterly report of consolidated foreign claims from the Bank for International Settlements (BIS) and debt/GDP ratios among these reporting countries. The empirical results show that this index can help the regulators and practitioners not only to determine the status of interconnectivity but also to point out the degree of the sovereign debt default risk. Our approach sheds new light on the investigation of quantifying the systemic risk.

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    File URL: http://arxiv.org/pdf/1304.3814
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1304.3814.

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    Date of creation: Apr 2013
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    Handle: RePEc:arx:papers:1304.3814

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    Web page: http://arxiv.org/

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