Wrong_way_risk
Wrong way risk
Concept in risk management
In the field of finance, a wrong way risk (WWR) occurs when credit exposure to a counterparty is negatively correlated with the credit quality of that counterparty.[1] In other words, the more a party gains on a trade, the more likely it is for the counterparty to default. It is a source of concerns for banks and regulators, as it increases the overall counterparty credit risk.
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It is opposed to right way risk (RWR), which occurs when one party's payment obligations are positively correlated to the same party's credit worthiness and thus reduces the overall counterparty credit risk.