Simple way to circumvent CDS legislation on sovereign debt

Discussion in 'Economics' started by Ghost of Cutten, May 26, 2010.

  1. If naked CDS trading is banned by a regulatory authority, just go long the underlying sovereign bond, then buy CDS contracts to insure your insurable interest (lol), then go short the relevant futures contract. Your net exposure is equivalent to long your naked CDS contracts only.

    Bit more difficult for corporate bonds but I can't see why some I-bank couldn't design an OTC derivative to 100% hedge the bond exposure, allowing the same position to be constructed.
  2. You do a lot of DD
  3. Great.

    Apply for a job at GS
    No, not kidding, it's for real.