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Empirical Analysis of Credit Default Swaps — CBS Research Portal
I reference my thesis on the intrinsic value of bitcoin in this pieceoriginally published in B itcoin Magazine in April It represents my view on the value of BTC as the anti fiat, fiat is the Ponzi, and how everyone needs insurance against the Ponzi collapsing. The basis of my paper is that BTC is insurance on the decaying credit quality of fiat-issuing sovereign nations. As such, it is credit protection on a basket of fiats.
When you own insurance, you own volatility. Similarly, when you are long credit, you are short volatility. Accordingly, the investing world is short volatility, and it desperately needs to offset that risk with insurance or being long volatility. In my paper, I calculated the intrinsic value of BTC at the then current credit default swap CDS rates and total liabilities of the G nations.
This dynamic calculation will increase in value as the price of the insurance increases. An increase in the price of insurance is reflected in a widening of CDS spreads. Well, spreads have widened for a number of reasons. For example, China CDS has widened due to the contagion from the Evergrande fallout. CDS has widened because, well… there are four or five reasons, but the most concerning is that the political elite are playing word games with the potential of defaulting.
Wake up people, this is not a drill. Contagion risks are increasing due to potential global stagflation see the excellent article by Dylan LeClair and Sam Rule, published in Deep Dive issue I am going to take a different tack this time.
I will run through the calculation of the value of BTC on just the U. financial situation. What that says is that you are effectively getting default insurance on the U. at a discount to intrinsic value, and you are getting protection on all the other fiats for free, credit default swap master thesis.
Is it any wonder why I believe BTC to be the best asymmetric investment opportunity I have seen in my 32 years of trading risk? Giddy up. Five-year CDS for the U. just traded at 17 basis points bps. Treasury debt UST against default. The sellers of LEH protection were picking up nickels in front of a steamroller. Are the current sellers of U. CDS doing the same? The costs would be astronomical. However, the kids are playing games. Yellen is dangerous in her lack of understanding of true risk markets.
Powell is a well-intentioned lawyer who has never sat in a risk chair. The mark-to-market function will account for the wider spreads, and you could close out the contract in advance of the five-year maturity and make a profit.
If five-year CDS is at 17 bps, what would year CDS trade at if it was a freely-traded contract? Note: In my paper I used a year CDS term, but have since reconsidered the necessity to have longer-term insurance. The value of small incremental annual tenor changes would bring in longer-term buyers, credit default swap master thesis.
Moreover, if the U. was smart it would drastically increase its average term of debt issuance. If the ducks are quacking, you should feed the ducks, and it sure seems like there are a lot of foolish bond credit default swap master thesis who are picking up nickels in front of the steamroller. In order to get that number, you need to do a tenor calculation. Five-year CDS costs 17 bps or 3. If we effectively do a linear regression on extending CDS to the year term, the cost would be 70 bps per year.
My gut tells me it would be wider due to all of the variables that the U. and the world will face over the next 20 years. In fact, I am pretty sure I would get lifted on an offer of year CDS on the U.
at bps per annum if anyone would take Foss as counterparty risk, which is unlikely. CDS is between 70 bps and bps per annum, credit default swap master thesis. According to the excellent website, USDebtClock. orgtotal funded plus unfunded liabilities of the U. Using my favorite BTC dashboard, bitbo, credit default swap master thesis. If you compare the current market cap of BTC to the value of insurance on total U.
And you get protection on all other failing fiats for free. Good golly, Miss Molly. Markets can be irrational, and in my opinion, BTC is far too cheap. Yes, current prices are a rounding error compared to my long-term target price, but this methodology gives me comfort that we are still sooooo early, credit default swap master thesis. How are your hedges doing, Charlie? And hedges are not just for gardeners.
Buckle up, credit default swap master thesis. Volatility is gurgling. Buy your insurance when it is cheap. BTC is insurance on crumbling fiat credit quality with no counterparty risk. The U. will likely be the last fiat to fail, but ultimately, all fiats fail. Hat tip, Voltaire. This is a guest post by Greg Foss. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine. Source link.
Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Remember Me. Thursday, October 7, GET WALLET. Home News Bitcoin Blockchain ICO Market Ethereum Litecoin Ripple Dogecoin. Bitcoin Value In Credit Default Swaps by Roni. October 6, in Bitcoin. Home Bitcoin. The Methodology Five-year CDS for the U. Adjusting The CDS Contract For A Year Term If five-year CDS is at 17 bps, credit default swap master thesis would year CDS trade at if credit default swap master thesis was a freely-traded contract?
The Current Funded and Unfunded Obligations Of The U. The Current Market Cap Of Bitcoin Using my favorite BTC dashboard, bitbo. How To Interpret The Results If you compare the current market cap of BTC to the value of insurance on total U. Tags: Bitcoin credit default swaps. Share Tweet Share. Next Post. Leave a Reply Cancel reply Your email address will not be published.
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Credit Default Swaps (2021 Level II CFA® Exam – Reading 36)
, time: 32:58Bitcoin Value In Credit Default Swaps – blogger.com
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