Credit contagion in a network of firms with spatial interaction

Diana Barro and Antonella Basso ()

European Journal of Operational Research, 2010, vol. 205, issue 2, 459-468

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 investigate the behavior of the model proposed and study the effects of default contagion on the loss distribution of a portfolio of bank loans.

Keywords: Finance; Credit; risk; Bank; loan; portfolios; Contagion; models; Entropy; spatial; models (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:205:y:2010:i:2:p:459-468

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