CVA wrong-way risk: calibration using a quanto CDS basis
Tsz-Kin Chung and Jon Gregory calibrate wrong-way risk with the help of quanto CDS values
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Tsz-Kin Chung and Jon Gregory discuss the calibration of a wrong-way risk (WWR) model using information from the quanto credit default swap market. Empirical evidence shows that implied foreign exchange jump sizes are significant for a wide range of corporates. For systemic counterparties, the credit valuation adjustment WWR add-on could be 40% higher than in the standard case, and choosing a proper jump-at-default WWR
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