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But... If I'm a hedge fund, why even own Greek debt plus the insurance? CDSes are generally used to hedge a position. If a hedge fund holds both Greek bonds an
by achompas 15y ago
But... If I'm a hedge fund, why even own Greek debt plus the insurance?
CDSes are generally used to hedge a position. If a hedge fund holds both Greek bonds and CDSes on those bonds, they come out ahead regardless of what happens to Greece.
- mdda 15y agoOnly if buying the insurance was cheaper than the carry from owning the bonds. There's no reason that this should be a 'free lunch'. Indeed, CDS, the bonds, and the market for short-selling the bonds, form a no-arbitrage kind of thing : So that no one makes money without risk.