Hello,
The idea of right way and wrong way risks seems straight forward enough. The only example I am having a tough time with is a firm "over-selling forward its future production" being a wrong way risk. I am not sure I see how the producer's diminished credit quality translating into an increased value for the forward contract.
Likewise, a firm "selling forward a small amount of its future production" does not exactly seem like a right way risk.
While on the concept of CVA, could you please briefly explain all of the "risk sensitivities" (partial derivatives of the bilateral CVA calculation) and what they actually represent, especially the meaning of the cross-gamma terms?
Thanks!
Shannon
The idea of right way and wrong way risks seems straight forward enough. The only example I am having a tough time with is a firm "over-selling forward its future production" being a wrong way risk. I am not sure I see how the producer's diminished credit quality translating into an increased value for the forward contract.
Likewise, a firm "selling forward a small amount of its future production" does not exactly seem like a right way risk.
While on the concept of CVA, could you please briefly explain all of the "risk sensitivities" (partial derivatives of the bilateral CVA calculation) and what they actually represent, especially the meaning of the cross-gamma terms?
Thanks!
Shannon
