Credit contagion in a network of firms with spatial interaction

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Credit contagion in a network of firms with spatial interaction

Author Info

Diana Barro () (Department of Applied Mathematics and SSAV, University of Venice)
Antonella Basso () (Department of Applied Mathematics and SSAV, University of Venice)

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Abstract

In this contribution we carried out a wide simulation analysis in order to study the contagion mechanism induced in a portfolio of bank loans by the presence of business relationships among the positions. To this aim we jointly apply a structural model based on a factor approach extended in order to include the presence of microeconomic relationships that takes into account the counterparty risk, and a network model to describe the business connections among interdependent firms. The network of firms is generated resorting to an entropy spatial interaction model.

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Paper provided by Department of Applied Mathematics, University of Venice in its series Working Papers with number 186.

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Length: 18 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:vnm:wpaper:186

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Find related papers by JEL classification:
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-12-01 (All new papers)
NEP-NET-2008-12-01 (Network Economics)
NEP-RMG-2008-12-01 (Risk Management)
NEP-URE-2008-12-01 (Urban & Real Estate Economics)

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Rudi Sch\"afer & Markus Sj\"olin & Andreas Sundin & Michal Wolanski & Thomas Guhr, 2007. "Credit risk - A structural model with jumps and correlations," Quantitative Finance Papers 0707.3478, arXiv.org, revised Jul 2007. [Downloadable!]
Diana Barro & Antonella Basso, 2008. "A network of business relations to model counterparty risk," Working Papers 171, Department of Applied Mathematics, University of Venice. [Downloadable!]
Philipp J. Schönbucher, 2000. "Factor Models for Portofolio Credit Risk," Bonn Econ Discussion Papers bgse16_2001, University of Bonn, Germany. [Downloadable!]
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Diana Barro & Antonella Basso, 2006. "A credit contagion model for loan portfolios in a network of firms with spatial interaction," Working Papers 143, Department of Applied Mathematics, University of Venice. [Downloadable!]
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. [Downloadable!] (restricted)
Other versions:
- 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. [Downloadable!]
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Other versions:
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- Hans Degryse & Steven Ongena, 2002. "Distance, Lending Relationships, and Competition," CSEF Working Papers 80, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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Other versions:
- Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Mitchell A. Petersen, 2000. "Does distance still matter? the information revolution in small business lending?," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 103-107.
André Lucas & Siem Jan Koopman, 2005. "Business and default cycles for credit risk," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 311-323. [Downloadable!]
Other versions:
- Siem Jan Koopman & André Lucas, 2003. "Business and Default Cycles for Credit Risk," Tinbergen Institute Discussion Papers 03-062/2, Tinbergen Institute, revised 09 Jan 2003. [Downloadable!]
Giesecke, Kay & Weber, Stefan, 2004. "Cyclical correlations, credit contagion, and portfolio losses," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3009-3036, December. [Downloadable!] (restricted)
Westgaard, Sjur & van der Wijst, Nico, 2001. "Default probabilities in a corporate bank portfolio: A logistic model approach," European Journal of Operational Research, Elsevier, vol. 135(2), pages 338-349, December. [Downloadable!] (restricted)

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