Collateralised exposure modelling: bridging the gap risk

Concentration, leverage and correlations may affect a collateralised equity swap portfolio

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Market-driven defaults, such as that of Archegos, point to the importance of wrong-way risk, concentration and leverage in shaping the tail of the credit loss distribution. Here, Fabrizio Anfuso presents a minimal framework for the joint dynamics of the market risk factors, the trade and collateral portfolio and the overall balance sheet of the defaulting counterparty. Based on this framework, directly applied to the relevant example of an equity swap, the author

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