It stands for specific wrong way risk; a type of wrong way risk (WWR) that comes into play because of specific factors impacting a counterparty such as poor earnings, deteriorated credit quality (rating downgrade), lawsuits, etc. This risk arises when a future exposure to a specific counterparty is positively correlated with its probability of default associated with the characteristics of the transaction involved. Exposure to this risk is expected to be high when the probability of default is high.
This risk arises mainly due to poorly structured transactions such as those collateralized by the counterparty’s own securities or related party securities.
