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Credit contagion in a network of firms with spatial interaction

  • Diana Barro

    ()

    (Department of Applied Mathematics and SSAV, University of Venice)

  • Antonella Basso

    ()

    (Department of Applied Mathematics and SSAV, University of Venice)

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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File URL: http://virgo.unive.it/wpideas/storage/2008wp186.pdf
File Function: First version, 2008
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Paper provided by Department of Applied Mathematics, Università Ca' Foscari Venezia 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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Web page: http://www.dma.unive.it/

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  1. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, 02.
  2. 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).
  3. Giesecke, Kay & Weber, Stefan, 2004. "Cyclical correlations, credit contagion, and portfolio losses," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3009-3036, December.
  4. Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Alberto Russo & Joseph E. Stiglitz, 2010. "Business fluctuations in a credit-network economy," Papers 1006.3521, arXiv.org.
  5. 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.
  6. 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).
  7. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
  8. Philipp J. Schönbucher, 2000. "Factor Models for Portofolio Credit Risk," Bonn Econ Discussion Papers bgse16_2001, University of Bonn, Germany.
  9. Carling, Kenneth & Lundberg, Sofia, 2005. "Asymmetric information and distance: an empirical assessment of geographical credit rationing," Journal of Economics and Business, Elsevier, vol. 57(1), pages 39-59.
  10. 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.
  11. Lucas, André & 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.
  12. 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.
  13. 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.
  14. Rudi Sch\"afer & Markus Sj\"olin & Andreas Sundin & Michal Wolanski & Thomas Guhr, 2007. "Credit risk - A structural model with jumps and correlations," Papers 0707.3478, arXiv.org, revised Jul 2007.
  15. 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.
  16. 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, Università Ca' Foscari Venezia.
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