Economics and Finance

    

Credit Valuation Adjustment with Wrong Way Risk

Authors: David Lee

This paper presents a new model for calculating credit valuation adjustment and wrong way risk. Empirically, we find evidence that wrong way risk has a material effect on credit valuation adjustment. The nature and direction of effect depend on payoff, correlation, credit quality and risk mitigation. The magnitude of the impact is relatively greater in credit and equity markets. Moreover, the empirical results indicate that diversification can reduce the impact of wrong or right way risk on the risky value of a portfolio.

Comments: 17 Pages.

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Submission history

[v1] 2022-03-22 15:08:21

Unique-IP document downloads: 238 times

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