Credit contagion and credit risk.

The article discusses the issues on contagion in credit risk modelling. According to studies, if a firm is experiencing economic stress or defaults, this will have implications for any firm which is economically influenced by this given firm. It found that the direct correlations between firms attributed to credit contagion lead to further complications in the overall modelling. They also determined that the loss distributions due to contagion are broadly in line with those of previous studies.