In this contibution the authors propose a contagion model for bank loan portfolios that takes into account both a macroeconomic component and a firm-specific microeconomic component due to the counterparty risk. The macroeconomic effect is assumed dependent on a few economic factors while the microeconomic mechanism of propagation is due to the business relations, explicitly modeled through the client network. A wide Monte Carlo simulation analysis is carried out in order to study the main festures of the model.
Counterparty risk: a credit contagion model for a bank loan portfolio
BARRO, Diana;BASSO, Antonella
2005-01-01
Abstract
In this contibution the authors propose a contagion model for bank loan portfolios that takes into account both a macroeconomic component and a firm-specific microeconomic component due to the counterparty risk. The macroeconomic effect is assumed dependent on a few economic factors while the microeconomic mechanism of propagation is due to the business relations, explicitly modeled through the client network. A wide Monte Carlo simulation analysis is carried out in order to study the main festures of the model.
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