Path-consistent wrong-way risk

A copula-based model for wrong way risk


In the context of counterparty credit risk management and the computation of credit valuation adjustments (CVAs), the correct inclusion of wrong-way risk (WWR) is still a major concern for bank managers and regulators. According to the International Swaps and Derivatives Association, WWR can be defined as the risk that occurs when ‘the exposure to a counterparty is adversely correlated with the credit quality of that counterparty'. Here, we focus on general WWR, ie, the unspecific positive

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