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Hi Lioninvestor,
I have a question.
Let’s say I have vested interest (shares worth S$10000) in Morgan Stanley. I am worried that MS may become bankrupt in the next 5 years. Can I go to a bank in Singapore and buy credit default swap (CDS) on MS? Like what you say…buy an insurance plan that pays you if MS defaults.
Can a small retail investor like myself buy credit default swap (CDS) on MS? If yes, Where can I buy this insurance? local bank?
Thanks
ReplyCDS for retail investors is not something I know of. Perhaps possible for private banking clients.
You can try buying put options on Morgan Stanley.
Or if the amount is huge enough, a financial institution can customize and create a structured product specially for you.
ReplyDear Lioninvestor /Kevin or Inthe know,
Thanks once again. Now the tough question which I have trying to get an answer to but not able to :
In the Pinnacle Series e.g., there are 100 names (the so-called udnerlying assets or rather “reference entitities”) – for which there were CDS signed with Morgan Captail Services as a counter-party. For Series 2 e.g. the issue size was about $26 million – and if invested in equal proportion for eachof the 100 names , tenit shold be only $260,000/- per name.
What was the amount of “credit default” that Noteholders “sold” the protection for in respect of each name in the “100 names”. In other word using the insurance terminoloy – what was the “sum insured” for each name (i.e. “reference entitiy”) ?
My guess the “sum isured” for each name (“reference entity”) in the 100 names was maytimes more than $260,000/=.
Please shed light on this question.
Many thanks.
ReplyHI CS Lim,
I will try to answer this question in a separate post this week.
I believe the answer to your question can be found inside the prospectus of the underylying assets
I must say that this is a well-written article that explains the mechanics of CDS in a simple way for the layman to understand.
We need more of such articles. Thank you.
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