Stochastic Credit Contagion Model for Enterprise Group

Abstract

Enterprise group’s credit risk has obviously infectious character because of its large number of companies, complex share relation and invisible associated business. The number of low credit rating companies within enterprise group and its variance directly reflects credit contagion trend in group. Combined with graph theory and epidemiological point of view, this paper firstly analyzed credit risk contagion process in group, then proposed a stochastic credit contagion model for enterprise group and gave an example for its application. In order to get the way of controlling infection, we took sensitivity analysis for principal parameters. Our results showed that reducing risk correlation degree and risk inflectional coefficient was effective to prevent credit contagion.