Abstract
Associated credit risk is a kind of credit risk among the associated credit entities formed by credit-related entities. Focusing on this hot topic of associated credit risk and the relevant contagion and considering the latent entities and their incubatory period, this paper builds an infectious dynamic model to describe the associated credit risk contagion of associated credit entities based on the mean-field theory of complex networks. Firstly, this paper analyzes the stable state of the associated credit risk contagion in the associated entity network, considering the latent entities and their incubatory period. Secondly, from the perspective of complex network and considering the incubatory period, a SHIS model is built to reveal how the incubatory period influences associated credit risk contagion. Finally, the sensitivity of some parameters is analyzed in the Barabási–Albert (BA) scale-free network. The results show the following: (i) the contagion threshold of associated credit risk is related to the incubatory period of latent entities, the recovery rate and infectivity of infected entities, and the newborn rate of credit entities; (ii) the infectious rate of infected entities, the mortality rate of credit entities, and the important factors stated in (i) are all significantly correlated with the density of infected entities.
Highlights
At present, the concept of credit risk has not formed a unified definition [1]. e conventional view is that credit risk refers to the risk that the counterparty or borrower is unable or unwilling to perform the contract; that is, the possibility that the default caused by the debtor’s failure to repay the debts in the contract on time will bring losses to the creditors [1]
Affected by above subprime crisis, Greece’s sovereign credit was downgraded, causing the European debt crisis to erupt and spread rapidly throughout the euro area at the end of 2009. It lasts for a long time from subprime crisis to European debt crisis, and these two big finance crises both cause significant fluctuations and losses of the global economy, which are both called systemic risk according to the literature [3]. e core of systemic risk concern is contagious [4]
Once the credit risk breaks out, it will quickly spread to other associated entities, harming the network of associated entities, even the financial system and the whole social economy, and even leading to the outbreak of systemic financial risk. erefore, it is of great theoretical significance and practical value to explore the hidden contagious evolutionary mechanism of associated credit risk and to identify, prevent, and control associated credit risk
Summary
The concept of credit risk has not formed a unified definition [1]. e conventional view is that credit risk refers to the risk that the counterparty or borrower is unable or unwilling to perform the contract; that is, the possibility that the default caused by the debtor’s failure to repay the debts in the contract on time will bring losses to the creditors [1]. In this paper, based on the classical SIS epidemiological model, a SHIS derived model is constructed to study associated credit risk contagion in an associated entity network to reveal the influence of incubatory period and relevant parameters on credit risk contagion. E highlights of this paper are to make use of the SHIS infectious dynamics model and introduce latent entities and the incubatory period to characterize the evolutionary contagion mechanism of associated credit risk in the associated entity network. The virus generally spreads through contacts in the contagion process of epidemic, while in the contagion process of associated credit risk, a node entity with credit risk is preferred to have negative effects on the associated entity that has direct relationship with the infected node entity. E above literature research lays the theoretical foundation for this paper to use an epidemiological model and complex network theory to study the associated credit risk contagion. We consider the incubation period to study the associated credit risk contagion in the associated entity network
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