In addition, CDS fee also varies continuously according to investor psychology, and according to the operating status of the business. However, if the credit rating of the borrower (or the issuers of bonds) is lower, the premium will be higher and vice versa. When business is the ability to higher bankruptcy rates increased fees CDS. CDS fee divided by the standard 1 year, 2 years, 5 years and 10 years. The most common is the fee for 5-year CDS.
CDS was invented in 1997 by JP Morgan Chase Bank. Pure original CDS is a contract of insurance for risky assets. But gradually, the CDS was deformed and became the game of the risk management fund (hedge fund). These funds do not hold shares of a company, but they know that this company is facing financial difficulties and may soon go bankrupt, so they have contracted CDS debt insurance is worth high bank. If the company is truly insolvent, the fund earned a lot of money. But if unfortunately the company has overcome a difficult period, the investment fund will take a lot. This is what Dr. Burry buy as predicted the collapse of the housing market
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