We consider a network of firms linked by business relationships and a financial institution holding a large portfolio with positions issued by the firms. As the firms are linked among each others, a financial distress in one of these firms can spread to the others causing the so called credit contagion effect, the propagation of economic distress from one firm or sovereign government to another. We explain the idea of credit crisis, how this phenomenon depends on our model parameters and the consequences that the clustering of defaults have on the portfolio hold by a bank with positions issued by the firms. We estimate the fluctuation of aggregate credit losses for a bank holding large portfolios of financial positions through mathematical approaches and numerical simulations and we show some possible intuitions about the consistency of our model with real market data.

Credit Crises and large portfolio Losses

Schiavon, Giovanni
2020/2021

Abstract

We consider a network of firms linked by business relationships and a financial institution holding a large portfolio with positions issued by the firms. As the firms are linked among each others, a financial distress in one of these firms can spread to the others causing the so called credit contagion effect, the propagation of economic distress from one firm or sovereign government to another. We explain the idea of credit crisis, how this phenomenon depends on our model parameters and the consequences that the clustering of defaults have on the portfolio hold by a bank with positions issued by the firms. We estimate the fluctuation of aggregate credit losses for a bank holding large portfolios of financial positions through mathematical approaches and numerical simulations and we show some possible intuitions about the consistency of our model with real market data.
2020-09-25
84
portfolio losses
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.12608/21916