@unpublished{mpra20365,
           title = {Double Impact on CVA for CDS: Wrong-Way Risk with Stochastic Recovery},
            year = {2009},
            note = {Unpublished},
           month = {December},
        keywords = {Counterparty Risk, Credit Valuation Adjustment, Wrong-Way Risk, Default Time Copula, Gaussian Copula, Default Correlation, Stochastic Recovery, Spot Recovery, Credit Default Swap},
          author = {Li, Hui},
             url = {https://mpra.ub.uni-muenchen.de/20365/},
        abstract = {Current CVA modeling framework has ignored the impact of stochastic recovery rate. Due to the possible negative correlation between default and recovery rate, stochastic recovery rate could have a doubling effect on wrong-way risk. In the case of a payer CDS, when counterparty defaults, the CDS value could be higher due to default contagion while the recovery rate may also be lower if the economy is in a downturn. Using our recently proposed model of correlated stochastic recovery in the default time Gaussian Copula framework, we demonstrate this double impact on wrong-way risk in the CVA calculation for a payer CDS. We also present a new form of Gaussian copula that correlates both default time and recovery rate.}
}