The Son of Finance of the Great Age

  Chapter 863 The King of Wall Street (3)

   As we all know, CDS is a credit default swap. Simply put, it is a financial derivative that controls credit risk. Prior to this, insurance companies usually provided credit guarantees for collaterals and charged a fixed fee. However, as the collateral market became larger and larger, the demand for such insurance premiums also increased accordingly. In 1998, a standardized CDS contract appeared, which completely liquidated the credit risk and made it tradable in the market. Variety.

  The subject matter of the CDS contract is credit risk. From this perspective, it is no different from those commodity contracts and stock contracts.

  However, Wall Street financiers did not stop developing such derivatives. Because the variety and coverage of CDS are increasing day by day, they refer to the stock market and imitate the CDS market to create CDX.

  The so-called CDX, the full name is the comprehensive index of North American investment rating companies CDS, founded in March 2002, a total of 125 investment grade rating companies. The index publisher weights the CDS prices of these companies together in some way to form IG1, the first phase of the CDX index.

  In the eyes of Wall Street, there is nothing that cannot be traded, and the CDX index is no exception. Soon there will be contracts for the CDX index.

  Select 125 high-quality companies in the stock market, combine their market value and stock price, compile an index A, and then issue futures for this index A, and use cash for settlement. This is the stock index futures.

   Now, Wall Street selects 125 high-quality companies in the CDS market, and after some weighting of their CDS prices and debt scales, they get the CDX index, and then use this index to issue futures. This is CDXIG.

  IG contracts are named according to the number of issuances. For example, the code name of the first issue issued in March 2002 is IG1. Slightly different from stock index futures, IG contracts are issued every six months, and the issuance period is much longer than the former. Generally, the basic unit is the period of one year, two years, three years, five years, ten years etc. The newly issued contracts are called "new bonds" and are the most liquid contracts in the CDS market.

  Since the CDX index is a CDS index, it naturally reflects the degree of market risk to a certain extent. For example, the entire bond market is full of default risks, so the price of CDS will naturally remain high, and the integrated CDX index will naturally rise accordingly. In the opposite case, the performance of the CDX index would not be so conspicuous.

  The same thing as stock index futures, although they are designed to hedge risks, they are still inevitably reduced to speculative paradise for some institutions, especially when the entire CDS market is still an over-the-counter market and unregulated.

   Closer to home.

   "Is there an index for CDS too?"

  Zhong Shi suddenly showed surprise on his face, "God, it's really beyond my expectation that derivatives can be created into an index."

   Regardless of whether he really didn't know or was pretending, the expression on his face at this moment was very sincere.

   "This principle is no different from stock index futures."

  Bruno Ixil shrugged and said disapprovingly, "For CDX, there are futures issued, which are IG contracts. According to your situation, Mr. Zhong, I suggest that you buy IG index contracts to avoid risks."

"and many more…"

Zhong Shi waved his hand and asked humbly, "What is the IG contract? Please explain it to me in detail. I am very sorry, your derivatives are too complicated. I I can't keep up with your rhythm."

  Bruno Ixil was obviously very satisfied with Zhong Shi's attitude, allowing such a leading figure in the industry to ask him for advice greatly satisfied his vanity. Immediately without thinking, he said bluntly:

"If you compare CDS to each stock, then the IG contract is the stock index futures. According to your risk exposure of 15 billion US dollars, if you want to buy CDS at the market price, suppose the price is around 500 million US dollars. But you Now instead of buying the CDS on those bonds, putting that money into the IG contract, I would expect to spend around $100 million to $150 million."

"Although the leverage is a bit high, it may greatly save your cost of avoiding risks. Although the term of this contract is generally longer, it is better than stock index futures in that you can choose CDS when you finally deliver. It is equivalent to commodity futures, so that you can avoid risks and increase the leverage of capital utilization at the same time, killing two birds with one stone!"

   "Wait, let me think about it..."

Despite Bruno Ixil's vigorous advocacy, Zhong Shi remained unmoved, interrupted the other party's conversation, frowned and considered for a while, and finally said, "Sorry, at least for the time being, I shouldn't Go buy that so-called IG contract."

"why is that?"

Bruno Ixil's face twitched slightly, unable to hide his disappointment, but he quickly adjusted his mentality, and continued to seduce with all his strength, "If there is anything else that needs to be understood, I will give it to you right away." You prepare the materials and make sure to let you know every detail."

   "You can give me a document, but this time forget it!"

Zhong Shi is still very firm, "Until I have a thorough understanding of this market, I will not rush into it. This is my investment style. However, if we have the next opportunity to cooperate, I may use you to do it." Purchased the IG contract."

   "That would be great!"

After hearing such an explanation, Bruno Ixil couldn't say anything more, but soon he started flattering Zhong Shi, "Mr. Zhong's attitude towards investment is comparable to that of Warren Buffett. .Oh, no, it is far more than Buffett. People like Buffett have no way to compare with you, Mr. Zhong.”

   It is well known that Buffett has a famous saying, to the effect that he will not invest in fields or companies he is not familiar with.

  Although Bruno Ixil wanted to praise Zhongshi, he chose rationally at the last moment not to belittle Buffett. The purpose was naturally to avoid arousing Zhongshi's resentment. You must know that Buffett is a prominent investor in the world. If he belittles the other party in this way, it may arouse Zhong Shi's displeasure, and on the other hand, he will appear to be too low-level.

   What made Bruno Ixil feel a little relieved was that Zhong Shi neither expressed joy nor displeasure at his flattering words.

   "Okay, let's stop here!"

  Zhong Shi turned his wrist to look at his watch, and stopped the conversation, "As for specific matters, someone from the Tianyu Foundation will contact you. Thank you for your hospitality. I'm going to find my companion now, goodbye."

   "Thank you again!"

  Bruno Ixil stood up, respectfully sent Zhong Shi out of the meeting room, and returned to the meeting room full of joy until the other party's figure disappeared completely.

   "How was the talk?"

  Jamie Thompson, who disappeared without a trace just now, reappeared in this conference room at some point. I saw him asking Bruno Ixil with a solemn expression, "Does he plan to buy CDS?"

"certainly!"

Bruno Ixil waved his fist excitedly, and said excitedly, "I just said that my strategy is very effective. If you follow your reference directly, I can guarantee that he will at least shop around. After all, his The amount of CDS transactions is quite large, and there is no guarantee that our competitors will give him a little discount."

   "Hmph, although your strategy is good, have you ever thought that you may be in danger of exposing your position?"

Jamie Thompson did not show the slightest excitement, but said coldly, "Now the position on CDS has exceeded 100 billion US dollars, and the arbitrage space has not been smoothed out at all. If the other party finds out, we will I couldn't eat and walked away."

   "Don't worry, absolutely not!"

Bruno Ixil seems to have been completely replaced by another person, the respectful expression just now has disappeared without a trace, replaced by a look of disdain, "I also said that this guy is the king of making money, but in my case It seems that he is just a guy with a vain reputation. He doesn’t even know what CDX is, I really don’t know how this guy has accumulated such a big reputation.”

  His words were full of disdain and contempt for Zhong Shi.

   "Don't underestimate this guy!"

Seeing that the other party didn't take what he said to heart at all, Jamie Thompson couldn't help but secretly sighed in his heart, knowing that there was nothing he could do about the other party, and the other party would naturally not take his words to heart, but out of duty, he still I would like to persuade you one more sentence, "If the other party perceives our tricks in the CDX market and wants to fight us, then we are really in danger. I advise you to restrain yourself and reduce the existing position."

   "Am I afraid of him?"

To Jamie Thompson's surprise, Bruno Ixil not only didn't listen to what he said, but instead responded forcefully, "I'm afraid he won't come! I want to see, he How much money you have, you can fight with me!"

Before Jamie Thompson could say anything, Bruno Ixil continued: "Hey, in this market, I am the king. Whoever wants to live and whoever wants to die is just a matter of one sentence. Say To be honest, I still hope that he can find this loophole, so that I can fight him and see how good this so-called 'king of money' is!"

"Hi…"

   After talking dry, only such a sentence from the other party was exchanged. Jamie Thompson was very frustrated. After leaving such an exclamation, he left without looking back.

   "Coward! Softass!"

  Looking at the figure of the other party leaving, Bruno Ixil secretly spurned, even this colleague did not escape his contempt.

  …

   "Beautiful lady, can I ask you to dance?"

  When Zhong Shi reappeared at the reception, he found that Ivana was in a daze in a corner. Immediately, he became playful and walked up to the other party to play the trick of inviting her.

Although Ivana is good at socializing, women are just an embellishment on this occasion, so after talking to a few ladies, she lost interest in socializing and found a corner to quietly "daze".

  Suddenly seeing Zhongshi appearing in front of her, Ivana was taken aback. She hurriedly stood up, wiped her ears, and then asked, "Is the conversation over?"

"What’s wrong with you?"

  Zhong Shi gave her a strange look, and then said, "The conversation is over. Now let's dance, it's not in vain."

   "Do you still want to have a good meal?"

  Ivana rolled her eyes at Zhong Shi, and stretched out her slender hands to him, "Tell me, what did you talk about with those old foxes?"

   "What was talked about?"

Now that the other party accepted his request to dance, Zhong Shi put his hand on the other party's waist unceremoniously, hugged the other party into the dance floor, and began to spin gently under the accompaniment of the music, "It's just I talked about some business matters, and you wouldn’t understand it. But it allowed me to verify one thing, and this is the biggest gain of my trip.”

   "Short JP Morgan opportunity?"

  Ivana asked seemingly casually, "Did you get the news we wanted? Are you sure?"

"certainly!"

  Zhong Shi frowned twice triumphantly, and said to the other party happily, "Now, you can short JP Morgan's stock, and I guarantee you will make a lot of money."

   Thank you book friend seanju1 for voting for the monthly ticket! Thank you book friend, I'm really a fat man, a hardworking person's reward! Thank you for your unwavering support. The author will work harder to write the book. I hope this month's book will have better results. Although it is not easy, I will do my best to persist. I also hope that more book friends will actively Vote for this book~Thank you so much~

  (end of this chapter)