Wrong-way risk, credit and funding

Wrong-way risk, credit and funding

A sign reading 'Wrong way - go back'

The financial crisis that followed the collapse of Lehman Brothers in 2008 ushered in a greater focus on counterparty credit risk, and brought terms such as credit, and more controversially debit and funding, valuation adjustments (CVA, DVA and FVA) into the mainstream. These attempt to price the expected mark-to-market (MtM) losses or gains from either party’s default, and the costs of funding the positions. The most dangerous manifestation of counterparty risk comes when the default

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