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Credit risk spillovers, systemic importance and vulnerability in financial networks

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  • Grinis, Inna

Abstract

How does the change in the creditworthiness of a financial institution or sovereign impact its creditors’ solvency? I address this question in the context of the recent European sovereign debt crisis. Considering the network of Eurozone member states, interlinked through investment cross-holdings, I model default as a multi-stage disease with each credit-rating corresponding to a new infection phase, then derive systemic importance and vulnerability indicators in the presence of financial contagion, triggered by the change in the creditworthiness of a network member. I further extend the model to analyse not only negative, but also positive credit risk spillovers.

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  • Grinis, Inna, 2015. "Credit risk spillovers, systemic importance and vulnerability in financial networks," LSE Research Online Documents on Economics 60954, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:60954
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    Cited by:

    1. Laleh Tafakori & Armin Pourkhanali & Riccardo Rastelli, 2022. "Measuring systemic risk and contagion in the European financial network," Empirical Economics, Springer, vol. 63(1), pages 345-389, July.
    2. Paolo Giudici & Laura Parisi, 2018. "CoRisk: Credit Risk Contagion with Correlation Network Models," Risks, MDPI, vol. 6(3), pages 1-19, September.

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    More about this item

    Keywords

    financial networks; systemic risk; contagion; multi-stage disease;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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