Financial Engineering Workshop - Matthias Arnsdorf (J.P. Morgan)

Presenter: Matthias Arnsdorf (J.P. Morgan)

Presentation title
Leveraged Wrong-Way Risk

Abstract
Recent events have shown that standard models for counterparty credit exposure are not well suited to capturing the risks inherent in the collateralized and highly leveraged portfolios typical for hedge funds. This is because large and sudden market moves will result in collateral calls which can lead directly to counterparty default. This is a specific type of “leveraged” wrong-way risk which is more powerful than the wrong-way effect produced by standard models and is key to generating non-negligible exposures for collateralized counterparties. Here we present a simple framework to compare different wrong-way risk models and show how realistic levels of exposure can be obtained in line with recent experience.

Bio
Matthias Arnsdorf is the global head of the Counterparty Credit Risk & XVA Quantitative Research at J.P. Morgan. His responsibilities include the development of credit exposure and XVA models for valuation, risk management as well as credit risk capital. Matthias started his career in finance in 2002 developing credit derivatives models. Prior to this he spent two years as a post-doctoral researcher at the Niels Bohr Institute in Copenhagen. Matthias holds a PhD in Quantum Gravity from Imperial College London.

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