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Looking for information about the CDS trade


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Hi all,

If I'm not mistaken there was some presentation back than, explaining a little bit about Fairfax's CDS position. But couldn't find it on the company's site. I'm supposed to present a subject about credit risk (30 minutes), in a course I'm taking, and trying to gather all the information I can about FFH's trade.

So far, I only got the AGM presentations, annual letters and reports. Along with some interviews from the globe and mail.

Today my professor told me that: How those swaps work, and things like ways of reducing counter-party risk, are being covered in the course (which means that a significant part of my presentation is being cut, and I need to feel the gap).

Any help would be very appreciated.

 

Sorry about my English. :-\

 

Many thanks.

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Last year at the Fairfax dinner it was described as follows.  Others please add detail if you can, my memory may not be the greatest.  In the mid-2000s, the folks at Fairfax were looking for a place to invest some funds and could not find very many places to invest.  They felt the structured finance area (subprime mortgages and related insurance cos) were vulnerable due to the bad loans originated.  Before 1986, they invested in CDSs (see page 10 of 2008 for details of losses and gains) and lost a cumulative total of 75% of value by year end 2006 and invested more at that time.  Doubling down before the big crash.  The key aspect for these instruments is they were like buying put options on subprime bonds and related firms bonds for very small premiums (like picking up pennys in the front of a steam roller).   

 

Another trade is described in the "Big Short" in detail if you need more info.

 

Packer 

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Another trade is described in the "Big Short" in detail if you need more info.
Oh wow, totally skipped my mind! Thanks, that would be useful. :)

 

As for Fairfax: What I was able to get from the annual reports, was the amounts held & sold by period, plus the profits. Hoped that there was some source in which the notional amounts were breaken down by reference entities.

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Look at the Wikipedia article on them.  I haven't looked recently, but it had a pretty good discussion at a very detailed level.  Also Nomura put out a white paper on them a while ago. 

 

Way back, at the time of the crises, the Wall Street Journal ran a longish article for the general reader, (that is the general reader of the WSJ!)  Finding that article might be more trouble than it is worth however.

 

good luck

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