Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 28, 2023 erstellt
Description:
We introduce a simple model for the credit exposure to leveraged and collateralized counter-parties. Wrong-way risk is captured by linking the counter-party default probability directly to changes in the portfolio value. This applies e.g. to leveraged firms such as hedge funds where large collateral calls can be the driver of default. We show that our model is able to reproduce the large losses observed in recent events. These losses were unexpected based on typical exposure models which neglect the relatedness of large market moves and the viability of the counter-party. Our model is intuitive to parameterize and straightforward to implement and thus provides a useful tool for assessing the credit risk inherent in leveraged portfolios