Advanced Search
MyIDEAS: Login

Credit Risk in a Network Economy

Contents:

Author Info

  • Henry Schellhorn

    () (University of Lausanne, FAME and IMD, Lausanne)

  • Didier Cossin

    () (University of Lausanne, FAME and IMD, Lausanne)

Registered author(s):

    Abstract

    We develop a structural model of credit risk in a network economy. In particular, we are able to account for complex counterparty relationships,where one company may be indirectly affected by the credit risk of another company in the network. In this re-spect,we generalize Jarrow and Yu (2001)and Collin-Dufresne,Goldstein and Hugonnier (2003),but do so in the rich context of a structural form model. We provide closed form formulae for the price of risky debt and equity,which depend upon the lending/borrowing relationships in the economy. Our model applies to completely general lender/borrower relationships,including looping relationships. Our formulae can apply to cases where not only ?nancial ?ows but also operations are dependent across ?rms. In order to achieve these results,we use queueing theory. This paper thus represents one of the ?rst applications of queueing theory to ?nance.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.swissfinanceinstitute.ch/rp106.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp106.

    as in new window
    Length:
    Date of creation: Mar 2004
    Date of revision:
    Handle: RePEc:fam:rpseri:rp106

    Contact details of provider:
    Postal: 40 bd. du Pont d'Arve, Case postale 3, CH - 1211 Geneva 4
    Phone: 41 22 / 312 09 61
    Fax: 41 22 / 312 10 26
    Web page: http://www.swissfinanceinstitute.ch
    More information through EDIRC

    Related research

    Keywords: Credit Risk; Capital Structure; Queueing Networks;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fam:rpseri:rp106

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marilyn Barja).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.