Path-consistent wrong-way risk: a structural model approach

摘要

We present a general and path-consistent wrong-way risk (WWR) model, which does not require simulation of credit and market variables simultaneously. Although similar so-called copula models are well known, our approach is novel in several ways. First, our method can model a wide range of dependence structures while always guaranteeing path consistency of default probabilities (the possibility of path-inconsistencies in copula models was highlighted in a recent article). Second, we place special