easy · FRM Part 2 Credit Risk
What is 'Wrong-Way Risk' in the context of counterparty credit risk?
- When correlation between two otherwise unrelated market assets turns sharply negative
- When the exposure to a counterparty increases as the counterparty's credit quality worsens
- When a proprietary trader deliberately places a bet against the market's overall trend line
- When a bank's internal credit models incorrectly calculate a counterparty's Probability of Default
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