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Damiano Brigo on Systemic Risk and the Hedging of DVA
Speaking at the Risk Annual Summit, Damiano Brigo warned of the potential introduction of systemic risk by institutions hedging their DVA risk.
“If you think about this strategy in 2008, a bank selling protection on Lehman Brothers would have to pay out the settlement in the middle of the crisis, pushing it closer to default. Regulators should be very concerned about this proxy hedging – it’s very dangerous and if everybody starts doing it, it’s going to be a very critical situation.”
via Risk Magazine