A Credit Contagion Model for Loan Portfolios in a Network of Firms with Spatial Interaction

24 Pages Posted: 15 Nov 2006

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: September 2006

Abstract

This contribution studies the effects of credit contagion on the credit risk of a portfolio of bank loans. To this aim we introduce a model that takes into account the counterparty risk in a network of interdependent firms that describes the presence of business relations among different firms. The location of the firms is simulated with probabilities computed using an entropy spatial interaction model. By means of a wide simulation analysis we use the model proposed to study the effects of default contagion on the loss distribution of a portfolio.

Keywords: credit risk, bank loan portfolios, contagion

JEL Classification: G33, G21, C15

Suggested Citation

Barro, Diana and Basso, Antonella, A Credit Contagion Model for Loan Portfolios in a Network of Firms with Spatial Interaction (September 2006). Available at SSRN: https://ssrn.com/abstract=944541 or http://dx.doi.org/10.2139/ssrn.944541

Diana Barro

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

SSAV ( email )

Venice
Italy

Antonella Basso (Contact Author)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy
+39-041-2346914 (Phone)

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