Wrong-way risk (WWR)
LCH plans to let banks clear self-referencing CDSs
Move will facilitate index arbitrage trades and put CDSClear one step ahead of rival Ice, note FCMs
Asian buy side faces non-cleared margin currency penalty
Global banks charge premium for accepting local securities instead of major currencies
Derivatives pricing under bilateral counterparty risk
The authors consider risk-neutral valuation of a contingent claim under bilateral counterparty risk using the well-known reduced-form approach.
On the correlation and parametric approaches to calculation of credit value adjustment
This paper develops a connection between the Hull–White parametric approach and the PCL correlation approach for CVA calculation.
Bank risk manager of the year: SG CIB
Risk Awards 2017: Bespoke stress tests helped navigate Brexit and autocallable pressure
Path-consistent wrong-way risk: a structural model approach
The author of this paper presents a general and path-consistent wrong-way risk (WWR) model that does not require simulation of credit and market variables simultaneously.
Cutting edge introduction: Jumpy wrong-way risk
Quants propose easy approximations for modelling wrong-way risk in CVA frameworks
Jumping with default: wrong-way risk modelling for CVA
Fabio Mercurio and Minqiang Li investigate CVAs in the presence of wrong-way risk
Wrong-way risk done right
Jacky Lee and Luca Capriotti present an arbitrage-free valuation method for counterparty exposure of credit derivates portfolios.
Fed economist sees gaps in CCP risk management
Quant Congress USA: CCPs struggle to model conditional losses and auction behaviour
Right-way risk can create a false sense of security
Counterparty correlations are no substitute for due diligence, argues Kaminski
FVA, correlation, wrong-way risk: EU stress test’s hidden gems
How much margin is missing in sovereign swaps? The stress test had the answer
Path-consistent wrong-way risk
A copula-based model for wrong way risk
Exposure under systemic impact
Wrong-way risk (WWR) behaves differently for exposures to systemically important counterparties because their default has the potential to move financial markets before the close-out. Michael Pykhtin and Alexander Sokol show how the traditional exposure…
Exposure under systemic impact
Exposure under systemic impact
Wrong-way risk, credit and funding
The risk of exposure and counterparty default probability both increasing – so-called wrong-way risk – is usually understood in terms of the correlation between the two variables. But this approach is focused more on the centre of the distribution, and…
Isda AGM: CCP ‘Armageddon’ could lead to sovereign default, warns HSBC exec
Single bank default could affect multiple CCPs, leading to crippling default contribution for existing members and a chain of bank failures
Cutting Edge introduction: Wrong-way risk and the limits of correlation
Traditional models for wrong-way risk focus on the correlation between default and exposure – a blunt tool for a tail risk. Alternatives are thin on the ground, but a scenario-based approach may provide some fresh insight. Laurie Carver introduces this…