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Spatial Interaction Model of Credit Risk Contagion in the CRT Market

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  • Tingqiang Chen
  • Xindan Li
  • Jining Wang

Abstract

In this paper, we introduce an entropy spatial model of credit risk contagion in the credit risk transfer (CRT) market that considers the effects of spatial, industry-specific, regional financial and individual factors of the CRT market on credit risk contagion. We use numerical simulation to describe the influence and active mechanism of the spatial distance and transmission capacity between banks and investors in the CRT market. We also assess bank asset quality and credit risk transfer capability, as well as investor asset scale and risk preference level, bank financial development level, investors in the area and the weight of investors in the area relative to credit risk contagion. This model contributes to the explicit formalization of the connection between probability and spatial factors and provides new ideas and a theoretical framework for considering credit risk contagion in a spatial context, which has great relevance for credit risk management. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Tingqiang Chen & Xindan Li & Jining Wang, 2015. "Spatial Interaction Model of Credit Risk Contagion in the CRT Market," Computational Economics, Springer;Society for Computational Economics, vol. 46(4), pages 519-537, December.
    • Handle: RePEc:kap:compec:v:46:y:2015:i:4:p:519-537
    DOI: 10.1007/s10614-014-9475-2
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    7. Tingqiang Chen & Binqing Xiao & Haifei Liu, 2018. "Credit Risk Contagion in an Evolving Network Model Integrating Spillover Effects and Behavioral Interventions," Complexity, Hindawi, vol. 2018, pages 1-16, March.
    8. Lim, Seo-Yeon & Choi, Sun-Yong, 2024. "Dynamic credit risk transmissions among global major industries: Evidence from the TVP-VAR spillover approach," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    9. Jiang, Shanshan & Fan, Hong, 2018. "Credit risk contagion coupling with sentiment contagion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 186-202.
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    12. Li, Shouwei & Sui, Xin, 2016. "Contagion risk in endogenous financial networks," Chaos, Solitons & Fractals, Elsevier, vol. 91(C), pages 591-597.

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