Wrong way risk

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Revision as of 12:06, 27 October 2014 by imported>Doug Williamson (Link with new Guide to risk management page & remove link to old Risk management page, and link with Swap page.)
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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 when Parmalat the Italian dairy firm (in 2003 Europe's biggest bankruptcy) sold credit default swaps on itself.


See also