Wrong way risk

Wrong way risk refers to the risk that a counterparty's credit quality deteriorates when exposure to that counterparty increases. In other words, it occurs in situations where the likelihood of a counterparty defaulting increases precisely when the exposure to that counterparty is at its highest. This creates a situation where the risk of loss is amplified because market conditions that adversely affect the counterparty's creditworthiness also elevate the value of the exposure.