Incorporating Contagion in Portfolio Credit Risk Models Using Network Theory

Figure 3

Illustration of the CountryRank parameter using a hypothetical network. The subfigures (a)–(e) show the propagation of stress in the network starting from the sovereign node to corporate nodes. At each step, the stress spreads to a node using the path with the maximum weight from the sovereign node.

(a) Sovereign node in stress

(b) Stress propagates to node

(c) Stress propagates to node

(d) Stress propagates to node

(e) Stress propagates to node