Credit default swap speculation (CDS speculation)

If a debtor’s credit rating deteriorates, the value of a CDS rises. Market participants who use CDSs to bet on rising prices therefore have an incentive to badmouth the debtor by spreading unfavorable rumors. A speculator makes the highest profit if the debtor defaults and the underlying asset is not repaid. – This interest is compared to an arsonist who buys fire insurance on his house, which he can then legally set on fire. Therefore, there are calls to allow hedging transactions with CDSs, but to prohibit pure speculative transactions under supervisory law. – See credit default swap, credit default swap market transparency, dissemination, market transparency.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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