Before revision: We propose a credit risk approach in which financial institutions , modelled as a portfolio of risky assets characterized by a probability of default and a correlation matrix, are the nodes of a network whose links are credit exposures that would be partially lost in case of neighbours' default .
After revision: The interconnectedness of financial institutions affects instability and credit crises. To quantify systemic risk we introduce here the PD model, a dynamic model that combines credit risk techniques with a contagion mechanism on the network of exposures among banks. A potential loss distribution is obtained through a multi-period Monte Carlo simulation that considers the probability of default and a correlation matrix, are the nodes of a network whose links are credit exposures that would be partially lost in case of neighbours' default .