Jumping with Default: Wrong-Way-Risk Modeling for Credit Valuation Adjustment

We investigate credit value adjustments (CVAs) in the presence of wrong-way risk (WWR) by introducing jumps at default to model correlation between counterparty's default and relevant risk factors. We focus on the foreign-exchange and interest-rate cases, presenting efficient CVA approximations based on CVA computation under independence assumption. Numerical examples of the CVAs of a cross-currency swap and a vanilla interest-rate swap are showcased.