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A network of business relations to model counterparty risk

Author

Listed:
  • Diana Barro

    (Department of Applied Mathematics, University of Venice)

  • Antonella Basso

    (Department of Applied Mathematics, University of Venice)

Abstract

This contribution presents a network of interdependent firms in which the spatial diffusion of the business relations is described by an entropy spatial interaction model. This network is used in a credit risk model in order to take into account the counterparty risk and describe the resulting contagion effects.

Suggested Citation

  • Diana Barro & Antonella Basso, 2008. "A network of business relations to model counterparty risk," Working Papers 171, Department of Applied Mathematics, Università Ca' Foscari Venezia.
    • Handle: RePEc:vnm:wpaper:171
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    References listed on IDEAS

    as
    1. David Saunders & Costas Xiouros & Stavros Zenios, 2007. "Credit risk optimization using factor models," Annals of Operations Research, Springer, vol. 152(1), pages 49-77, July.
    2. Schönbucher, Philipp J., 2000. "Factor Models for Portofolio Credit Risk," Bonn Econ Discussion Papers 16/2001, University of Bonn, Bonn Graduate School of Economics (BGSE).
    3. Marc Pröpper & Iman van Lelyveld & Ronald Heijmans, 2008. "Towards a Network Description of Interbank Payment Flows," DNB Working Papers 177, Netherlands Central Bank, Research Department.
    4. Didier Cossin & Henry Schellhorn, 2007. "Credit Risk in a Network Economy," Management Science, INFORMS, vol. 53(10), pages 1604-1617, October.
    5. Neu, Peter & Kühn, Reimer, 2004. "Credit risk enhancement in a network of interdependent firms," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 342(3), pages 639-655.
    6. Stefan Weber & Kay Giesecke, 2003. "Credit Contagion and Aggregate Losses," Computing in Economics and Finance 2003 246, Society for Computational Economics.
    7. Sanjiv R. Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2007. "Common Failings: How Corporate Defaults Are Correlated," Journal of Finance, American Finance Association, vol. 62(1), pages 93-117, February.
    8. Giesecke, Kay & Weber, Stefan, 2004. "Cyclical correlations, credit contagion, and portfolio losses," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3009-3036, December.
    9. Robert A. Jarrow & Fan Yu, 2008. "Counterparty Risk and the Pricing of Defaultable Securities," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 20, pages 481-515, World Scientific Publishing Co. Pte. Ltd..
    10. 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.
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    Cited by:

    1. 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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    More about this item

    Keywords

    credit risk contagion; networks; counterparty risk; entropy spatial models;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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