In this contribution we carried out a wide simulation analysis in order to study the contagion mechanism induced in a portfolio of bank loans by the presence of business relationships among the positions. To this aim we jointly apply a structural model based on a factor approach extended in order to include the presence of microeconomic relationships that takes into account the counterparty risk, and a network model to describe the business connections among interdependent firms. The network of firms is generated resorting to an entropy spatial interaction model.
Credit contagion in a network of firms with spatial interaction
BARRO, Diana;BASSO, Antonella
2008-01-01
Abstract
In this contribution we carried out a wide simulation analysis in order to study the contagion mechanism induced in a portfolio of bank loans by the presence of business relationships among the positions. To this aim we jointly apply a structural model based on a factor approach extended in order to include the presence of microeconomic relationships that takes into account the counterparty risk, and a network model to describe the business connections among interdependent firms. The network of firms is generated resorting to an entropy spatial interaction model.
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