Spatial Interaction Model of Credit Risk Contagion in the CRT Market

Tingqiang Chen (), Xindan Li and Jining Wang

Computational Economics, 2015, vol. 46, issue 4, 519-537

Abstract: In this paper, we introduce an entropy spatial model of credit risk contagion in the credit risk transfer (CRT) market that considers the effects of spatial, industry-specific, regional financial and individual factors of the CRT market on credit risk contagion. We use numerical simulation to describe the influence and active mechanism of the spatial distance and transmission capacity between banks and investors in the CRT market. We also assess bank asset quality and credit risk transfer capability, as well as investor asset scale and risk preference level, bank financial development level, investors in the area and the weight of investors in the area relative to credit risk contagion. This model contributes to the explicit formalization of the connection between probability and spatial factors and provides new ideas and a theoretical framework for considering credit risk contagion in a spatial context, which has great relevance for credit risk management. Copyright Springer Science+Business Media New York 2015

Keywords: Credit risk contagion; Entropy spatial model; CRT market; Spatial distance; Risk preference (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:46:y:2015:i:4:p:519-537

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DOI: 10.1007/s10614-014-9475-2

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