Risk Item: Wrong-way Risk
Generated on 2014/06/19 at 04:58:35 AM
Risk Item: Wrong-way Risk
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| Description (HTML) | The counterparty's credit quality to be co-dependent with the level of exposure. This effect is called wrong-way risk if the exposure tends to increase when the counterparty credit quality gets worse. ISDA (the International Swaps and Derivatives Association) defines wrong-way risk as the risk that occurs when "exposure to a counterparty is adversely correlated with the credit quality of that counterparty". The terms 'wrong-way risk' and 'wrong-way exposure' are often used interchangeably.
Wrong-way risk often has a non-linear pattern, tail risk, that cannot be captured be correlation models. |
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| Source Description | FinCAD resources | |||
| Source URL | http://www.fincad.com/derivatives-resources/wiki/wrong-way-risk.aspx | |||
| Document | No document attached... | |||
| Item Quality Status (Item Quality Status) | Acceptable | |||
| Updated by | webea.09 | |||
| Updated on | 2014-04-11 20:34:12 | |||
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