The credit valuation adjustment (CVA) is currently calculated in financial institutions to measure counterparty credit risk (CCR) on over-the-counter derivatives. A key factor in CVA is wrong-way risk (WWR): the correlation between counterparty exposures and credit qualities. In this paper, we present an analytical expression for CVA with WWR under the assumption of the lognormally distributed trade value. Using a Gaussian latent variable to drive market–credit correlation, the calculation of WWR is easily incorporated into the existing exposure simulation process in a CCR system. The proposed CVA with WWR model is used to find the CVA alpha that is a function of the market–credit correlation and the counterparty credit quality. The CVA alpha is used to study general WWR and specific WWR. The numerical results show that the entity’s rating downgrade has more of an impact on specific WWR than on general WWR.

中文翻译：

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高斯 copula 模型中的信用估值调整错向风险

目前金融机构计算信用估值调整 (CVA) 以衡量场外衍生品的交易对手信用风险 (CCR)。CVA 的一个关键因素是错向风险 (WWR)：交易对手风险敞口与信用质量之间的相关性。在本文中，我们在对数正态分布的贸易值假设下提出了带有 WWR 的 CVA 的解析表达式。使用高斯潜在变量来驱动市场信用相关性，WWR 的计算很容易结合到 CCR 系统中现有的暴露模拟过程中。建议的 CVA 和 WWR 模型用于找到 CVA alpha，它是市场信用相关性和交易对手信用质量的函数。CVA alpha 用于研究一般 WWR 和特定 WWR。