A credit contagion model for loan portfolios in a network of firms with spatial interaction
AbstractThis contribution studies the effects of credit contagion on the credit risk of a portfolio of bank loans. To this aim we introduce a model that takes into account the counterparty risk in a network of interdependent firms that describes the presence of business relations among different firms. The location of the firms is simulated with probabilities computed using an entropy spatial interaction model. By means of a wide simulation analysis we use the model proposed to study the effects of default contagion on the loss distribution of a portfolio.
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Bibliographic InfoPaper provided by Department of Applied Mathematics, Università Ca' Foscari Venezia in its series Working Papers with number 143.
Length: 26 pages
Date of creation: Nov 2006
Date of revision:
credit risk; bank loan portfolios; contagion models; entropy spatial models;
Find related papers by JEL classification:
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-18 (All new papers)
- NEP-BAN-2006-11-18 (Banking)
- NEP-CMP-2006-11-18 (Computational Economics)
- NEP-GEO-2006-11-18 (Economic Geography)
- NEP-RMG-2006-11-18 (Risk Management)
- NEP-URE-2006-11-18 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kern, Markus & Rudolph, Bernd, 2001. "Comparative analysis of alternative credit risk models: An application on German middle market loan portfolios," CFS Working Paper Series 2001/03, Center for Financial Studies (CFS).
- Egloff, Daniel & Leippold, Markus & Vanini, Paolo, 2007. "A simple model of credit contagion," Journal of Banking & Finance, Elsevier, vol. 31(8), pages 2475-2492, August.
- Stefan Weber & Kay Giesecke, 2003. "Credit Contagion and Aggregate Losses," Computing in Economics and Finance 2003 246, Society for Computational Economics.
- Lucas, Andre & Klaassen, Pieter & Spreij, Peter & Straetmans, Stefan, 2001.
"An analytic approach to credit risk of large corporate bond and loan portfolios,"
Journal of Banking & Finance,
Elsevier, vol. 25(9), pages 1635-1664, September.
- Lucas, Andr‚ & Klaassen, Pieter & Spreij, Peter, 1999. "An analytic approach to credit risk of large corporate bond and loan portfolios," Serie Research Memoranda 0018, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
- Carling, Kenneth & Rönnegård, Lars & Roszbach, Kasper, 2004. "Is Firm Interdependence within Industries Important for Portfolio Credit Risk?," Working Paper Series 168, Sveriges Riksbank (Central Bank of Sweden).
- Diana Barro & Antonella Basso, 2008.
"Credit contagion in a network of firms with spatial interaction,"
186, Department of Applied Mathematics, Università Ca' Foscari Venezia.
- Barro, Diana & Basso, Antonella, 2010. "Credit contagion in a network of firms with spatial interaction," European Journal of Operational Research, Elsevier, vol. 205(2), pages 459-468, September.
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