Which of the following scenarios offer an example of wrong way risk?
Posted: Wed Mar 16, 2022 9:43 am
Which of the following scenarios offer an example of wrong way risk?
A. A bank purchases credit protection on highly-rated tranches of US mortgage-backed securities from a US mortgage bank
B. A bank sells protection on the iTraxx main index at a level of 25 bps and shortly afterwards the index crosses the 200 bps level
C. A bank sells EUR put I USD call ATM options with an expiry date of 6 months and afterwards volatility moves up to substantially higher levels
D. A bank enters into a receiver’s swap while interest rates are increasing
A. A bank purchases credit protection on highly-rated tranches of US mortgage-backed securities from a US mortgage bank
B. A bank sells protection on the iTraxx main index at a level of 25 bps and shortly afterwards the index crosses the 200 bps level
C. A bank sells EUR put I USD call ATM options with an expiry date of 6 months and afterwards volatility moves up to substantially higher levels
D. A bank enters into a receiver’s swap while interest rates are increasing