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Risk Management

  Risk Management   |   Terms
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  • May 13, 2021
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General Wrong Way Risk

A type of wrong way risk (WWR) that comes into play because of general market risk factors (macroeconomic factors) affecting a counterparty (positive correlation). Examples include default by a market participant (s) to the central counterparty (CCP), or a default by the country in which a given participant operates.

Identification of general wrong way risk depends on designing and deploying stress testing and scenario analyses on risk factors that have negative correlation to counterparty credit quality. This risk shall be tracked in terms of products, regions, sectors, etc.

It is also known as conjectural wrong way risk.


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