Credit derivative use
Most investors who were disappointed by bankruptcies such as Norbourg in Canada or Enron in US will certainly understand the benefits of diversifying. Nonetheless the other lessons from theses disasters is that now hedging is not enough for protecting capital, it is also necessary to protect oneself against the risk of solvency of the issues of the titles they hold. Consequently mutual funds managers and Financial institutions will have the opportunity to offer new products such as credit derivatives.
posted by MyTaxProfessor at 8:22 PM
3 Comments:
I lost a lot of money in certain titles and I understand the benefit of getting a kind of insurance solvency. I would like to understand the tax treatment of these credit derivatives. If I incur no loss on the underlying asset could I DEDUCT the cost of the insurance in the current taxation year ?
Arthur Riopelle
This is a complex question, and the answer would vary on whether concrete situations correspond to tax rules as they apply to GAAP. However, one should resist oversimplifying the issues. I would suggest a complete reference on the matter:
http://www.alphalogiques.com/ouvrage.htm
Thank you,
I would hope that the book refered to has a lot of examples. I heard thet there is an upcoming update.
Arthur Riopelle
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