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A credit contagion model for loan portfolios in a network of firms with spatial interaction

Diana Barro () and Antonella Basso

No 143, Working Papers from Department of Applied Mathematics, Università Ca' Foscari Venezia

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 models; entropy spatial models (search for similar items in EconPapers)
JEL-codes: G33 G21 C15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cmp, nep-geo, nep-rmg and nep-ure
Date: 2006-11
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