Counterparty Risk: A Credit Contagion Model for a Bank Loan Portfolio

Barro, Diana; Basso, Antonella

doi:10.2139/ssrn.724887

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Counterparty Risk: A Credit Contagion Model for a Bank Loan Portfolio

24 Pages Posted: 19 May 2005

See all articles by Diana Barro

Diana Barro

Ca Foscari University of Venice - Dipartimento di Economia; SSAV

Antonella Basso

Ca Foscari University of Venice - Dipartimento di Economia

Date Written: May 17, 2005

Abstract

In this contribution we propose a contagion model for bank loan portfolios that takes into account both a macroeconomic component and a firm-specific microeconomic component due to the counterparty risk. The macroeconomic effect is assumed dependent on a few economic factors while the microeconomic mechanism of propagation is due to the business relations, explicitly modeled through the client network. A wide Monte Carlo simulation analysis is carried out in order to study the main features of the model.

Keywords: Credit risk, counterparty risk, bank loan portfolios, contagion models

JEL Classification: G19, C15, G21

Suggested Citation: Suggested Citation

Barro, Diana and Basso, Antonella, Counterparty Risk: A Credit Contagion Model for a Bank Loan Portfolio (May 17, 2005). Available at SSRN: https://ssrn.com/abstract=724887 or http://dx.doi.org/10.2139/ssrn.724887