Credit contagion in a network of firms with spatial interaction

Abstract

This Working Paper is published under the auspices of the Department of Applied Mathematics of the Ca' Foscari University of Venice. Opinions expressed herein are those of the authors and not those of the Department. The Working Paper series is designed to divulge preliminary or incomplete work, circulated to favour discussion and comments. Citation of this paper should consider its provisional nature.

Information diffusion, cluster formation and entropy-based network dynamics in equity and commodity markets

“…In their seminal study, Allen and Gale (2000) describe financial markets as complex networks and model financial contagion as an equilibrium phenomenon whereby liquidity shocks may spread through the network and contagious effects between financial institutions are smaller in a complete network structure than in an incomplete one. The complex dynamics of clusters and networks in financial markets have made them less diverse in the years that led to the financial crisis of [2008][2009], which thus witnesses the need for empirical research on financial networks, particularly after the global financial crisis (Allen and Babus, 2009 Barro andBasso (2010), andVeremyev andBoginski (2012).…”

Spatial dependence in credit risk and its improvement in credit scoring

“…Barro and Basso (2010) suggest a model of contagion that associates the economic relationship of sectors of the economy and the proximity of each pair of firms in a network of firms. Due to computational issues distances between regions were considered instead of firms.…”

An endogenous network model of banking systems

“…cn researchers have turned to adopt simulations to study contagion risk in different network structures of banking systems. There are many significant studies in this area, such as Nier et al [16], Teteryatnikova [17], Canedo and Jaramillo [18], Jorion and Zhang [19], May and Arinaminpathy [20], Barro and Basso [21], Georg and Poschmann [22], Gai and Kapadia [23], Gai et al [24], Lenzu and Tedeschi [25], Mastromatteo et al [26], Chen and He [27], Georg [28], Sachs [29], Chen et al [30], and Bo and Capponi [31].…”