Risk of Credit Default Swaps (CDS)

Suppose you bought Greek bonds and to protect yourself against default, you bought a CDS and paid a premium for this protection. The Greek government now offers repayment with a 50% "haircut" (i.e. you suffer a 50% loss) and you wish to make a claim on the CDS. Will you get paid for your loss?

According to this article, you will not be paid, as this is called a "voluntary settlement". On the other hand, there are many investors who were on the other side of the CDS during the Lehman crisis, and they lost all of their investments. It is "tail they win, head you lose".

Lesson: Avoid all types of complex instruments. Just invest in the STI Exchange Traded Fund or in blue chip share". Attend the FISCA Financial Planning talk - http://easyapps.sg/assn/Org/Event.aspx?id=5