The WWR in the tail: a Monte Carlo framework for CCR stress testing
A methodology to compute stressed exposures based on a Gaussian copula and mixture distributions is introduced
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In this article, Fabrizio Anfuso and Dimitrios Karyampas build on recent contributions and develop a simulation framework that combines a Gaussian copula and mixture distributions to model exposures to wrong-way risk and leveraged counterparties. As shown with concrete examples, the same framework can be applied to other interesting use cases and provides a way to compute stressed exposures able to account for tail events with existing Monte Carlo implementations
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