Counterparty Credit Risk Contagion in CRT Market: Heterogeneity Amplifies Financial Instability
The article explores how the risk of one party defaulting in the CRT market can spread to others. By looking at how different parties interact and their preferences, the study found that the risk of contagion is influenced by factors like supervision and the diversity of the network. The more diverse the network, the higher the threshold for risk spreading but the lower the overall impact. The way parties are connected in the network also plays a significant role in determining the level of risk contagion.