Cutting edge intro: Righting wrong-way risk

Models that describe wrong-way risk should move away from simplistic copula models, critics say.

techtree2

Tightening their grip on banks, regulators have laid out specific guidelines for almost all aspects of pricing and risk management, such as the calculation of regulatory capital, credit valuation adjustment and its associated capital charge. Surprisingly, the modelling of wrong-way risk, the rather inconvenient dependence between exposure and credit quality of the counterparty, is still left to the skill and imagination of quants.

Wrong-way risk is a tough beast to tame. Its modelling inherently

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: