Worst-Case Copulas, Mass Transportation and Wrong-Way Risk in Counterparty Credit Risk Management

Posted: 31 Mar 2013

See all articles by Amir Memartoluie

Amir Memartoluie

Independent

David Saunders

University of Waterloo

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: March 28, 2013

Abstract

We study the problem of finding the worst-case joint distribution of a set of risk factors given prescribed multivariate marginals with nonlinear loss function. The method has applications to any situation where marginals are provided, and bounds need to be determined on total portfolio risk. This arises in many financial contexts, including pricing and risk management of exotic options, analysis of structured finance instruments, and aggregation of portfolio risk across risk types. Applications to counterparty credit risk are highlighted, and include assessing wrong-way risk in the credit valuation adjustment, and counterparty credit risk measurement.

Keywords: Conterparty Credit Risk, Wrong-way Risk, Mass Transportation

JEL Classification: C61, G11, G21, G22

Suggested Citation

Memartoluie, Amir and Saunders, David and Wirjanto, Tony S., Worst-Case Copulas, Mass Transportation and Wrong-Way Risk in Counterparty Credit Risk Management (March 28, 2013). Available at SSRN: https://ssrn.com/abstract=2241196

Amir Memartoluie

Independent ( email )

David Saunders

University of Waterloo ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
(519) 888-4567 (Phone)

Tony S. Wirjanto (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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