Journal of Banking & Finance Vol. 31 No. 8 2007

A simple model of credit contagion

Daniel Egloff¹; Markus Leippold^2,3; Paolo Vanini³

¹ Zurich Cantonalbank, Switzerland · ² Federal Reserve Bank of New York · ³ University of Zurich

Abstract

We propose a simple model of credit contagion in which we include macro- and microstructural interdependencies among the debtors within a credit portfolio. The microstructure captures interdependencies between debtors that go beyond their exposure to common factors, e.g., business or legal interdependencies. We show that even for diversified portfolios, moderate microstructural interdependencies have a significant impact on the tails of the loss distribution. This impact increases dramatically for less diversified microstructures.

DOI

10.1016/j.jbankfin.2006.10.023

Volume

31

Issue

8

Pages

2475-2492

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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