How can a client determine if a portfolio manager is using a CDS for leveraging in such a way as to increase the portfolio’s risk relative to a bond index?
Answer to relevant QuestionsHow do market participants gauge the default risk of a bond issue? Give three reasons why the maturity of a bond is important. Suppose that you are reviewing a price sheet for bonds and see the following prices (per $100 par value) reported. You observe what seem to be several errors. Without calculating the price of each bond, indicate which bonds ...Answer the below questions. (a) What is meant by a reference entity? (b) What is meant by a reference obligation? All other factors constant, for a given reference obligation and a given scheduled term, explain whether a credit default swap using full or old restructuring or modified restructuring would be more expensive.
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