Wrong way risk: Difference between revisions
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imported>Doug Williamson m (Spacing. Author's single carriage returns ignored by Wiki software. Replace with double carriage returns.) |
imported>Doug Williamson m (Spacing and minor editing 7/8/13) |
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The risk that the value/effectiveness of a hedge or risk management product is most doubtful when most needed. | The risk that the value/effectiveness of a hedge or risk management product is most doubtful when most needed. | ||
For example when the credit standing of the seller of securities in a repo is positively correlated with that of the security sold. | |||
This was illustrated in swaps was when Parmalat the Italian dairy firm (in 2003 Europe's biggest bankruptcy) sold credit default swaps on itself. | |||
[[Category:Credit_Risk]] | [[Category:Credit_Risk]] | ||
Revision as of 15:18, 7 August 2013
The risk that the value/effectiveness of a hedge or risk management product is most doubtful when most needed.
For example when the credit standing of the seller of securities in a repo is positively correlated with that of the security sold.
This was illustrated in swaps was when Parmalat the Italian dairy firm (in 2003 Europe's biggest bankruptcy) sold credit default swaps on itself.
