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A default system with overspilling contagion


Coculescu, Delia (2017). A default system with overspilling contagion. SSRN 3004484, University of Zurich.

Abstract

In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced by the history of the default events. We extend the classical literature and allow a default system to have a contagious impact on its environment. In our framework, contagion can either be contained within the default system (i.e., direct contagion from a counterparty to another) or spill from the default system over its environment (indirect contagion).
This type of model is of interest whenever one wants to capture within a model possible impacts of the defaults of a class of debtors on the more global economy and vice versa.

Abstract

In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced by the history of the default events. We extend the classical literature and allow a default system to have a contagious impact on its environment. In our framework, contagion can either be contained within the default system (i.e., direct contagion from a counterparty to another) or spill from the default system over its environment (indirect contagion).
This type of model is of interest whenever one wants to capture within a model possible impacts of the defaults of a class of debtors on the more global economy and vice versa.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:18 July 2017
Deposited On:11 Aug 2017 12:33
Last Modified:11 Aug 2017 12:33
Series Name:SSRN
Free access at:Official URL. An embargo period may apply.
Official URL:https://ssrn.com/abstract=3004484
Other Identification Number:merlin-id:15018

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