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A note on empirical analysis for general wrong-way risk and stressed CVA

We introduce a model to evaluate credit value adjustment (CVA) for large derivative portfolios considering general wrong-way risk. First, we showed the empirical evidence that suggests the existence of wrong-way risks for interest rate swaps and foreign exchange forwards. Next, we formulate a model to calculate CVA considering the correlations between the probability of default of the counterparty, the interest rate curve, and the foreign exchange rate. Finally, we show numerical examples to estimate the effect of wrong-way risk, which can be related to the CVA stress testing.