What is an index tranche?
CDS index tranches are synthetic collateralised debt obligations (CDOs) based on a CDS index, where each tranche references a different segment of the loss distribution of the underlying CDS index. 9 The main advantage of index tranches relative to other CDOs is that they are standardised.
What does Snrfor mean?
Notional value defaults to one (1) million. The default Tier for most entities is SNRFOR (Senior Unsecured Debt). Other tiers including SUBLT2, JRSUBT2, PREFT1, SECDOM may be selected from the list. Tiers are defined in more detail in the Appendix.
What is CDX spread?
The Credit Default Swap Index (CDX) is a benchmark index that tracks a basket of U.S. and emerging market single-issuer credit default swaps. The CDX is also a tradable financial product that investors can use to gain broad exposure to the CDS market.
How are CDS priced?
The price of a credit default swap is referred to as its “spread,” and is denominated in basis points (bp), or one-hundredths of a percentage point. For example, right now a Citigroup CDS has a spread of 255.5 bp, or 2.555%. That means that, to insure $100 of Citigroup debt, you have to pay $2.555 per year.
What is iTraxx crossover?
The iTraxx Crossover index comprises the 75 most liquid sub-investment grade entities. Total Return indices are calculated and published hourly for iTraxx Europe, Asia and Crossover. These indices measure the performance of the respective on-the-run iTraxx CDS contracts.
What is recovery rate CDS?
Recovery rate is the extent to which principal and accrued interest on defaulted debt can be recovered, expressed as a percentage of face value. The recovery rate can also be defined as the value of a security when it emerges from default or bankruptcy.
Is CDX a swap?
CDX indices are a family of tradable credit default swap (CDS) indices covering North America and emerging markets. CDX covers multiple sectors, including: CDX North American Investment Grade.
Can I buy a credit default swap?
A large investor or investment firm can simply go out and buy a credit default swap on corporate bonds it doesn’t own and then collect the value of the credit default swap if the company defaults—without the risk of losing money on the bonds.
Which is the best definition of a tranche?
What is a Tranche? Home » Accounting Dictionary » What is a Tranche? Definition: A tranche is a percentage of a structured debt product that seeks to spread the interest rate risk across various credit rating securities. What Does Tranche Mean? What is the definition of tranche?
What are the different types of tranches in a CDO?
Tranches carry different maturities, yields, and degrees of risk—and privileges in repayment in case of default. Tranches are common in securitized products like CDOs and CMOs.
What is the premium on an index tranche?
The premium on an index tranche is the spread paid by the protection buyer that equates the expected present value of default costs to be borne by the protection seller (“protection leg”) to the expected present value of investing in the tranche (“premium leg”).
Which is the lowest ranked tranche of a CMO?
If an investor wants to buy a MBS, they can choose the tranche type most applicable to their appetite for return and aversion to risk. A Z tranche is the lowest-ranked tranche of a CMO in terms of seniority.
