Wrong Way Risk and Jump to Default

Abstract

After Lehman collapse, the market began to consider the potential default of big instituions classified too big to default. The CVA and collateral agreement became a market standard. One major risk of the Credit Risk Measure is the Wrong Way Risk. We will try to define the phenomena trough concret examples. Indeed it could afect the portfolio value but also the collateral value.The main task of this paper is to introduce an efficient model of default able to give realistic path and low variance estimator.