Credit risk spillovers, systemic importance and vulnerability in financial networks

Inna Grinis

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: financial networks; systemic risk; contagion; multi-stage disease (search for similar items in EconPapers)
JEL-codes: F34 G15 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2015-01-06
New Economics Papers: this item is included in nep-net and nep-rmg
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Citations: View citations in EconPapers (2)

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