Index cds
A credit default swap on an equally weighted portfolio of reference names. A default pays on that name's share of the notional, and the contract continues on the rest.
Where you will meet it
Index cds appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Set out what credit derivatives are and their main features
“Single-name CDS reference one issuer, while index CDS cover a portfolio of names and are used to hedge or take broad credit exposure.”
- Explain credit default swaps (CDS), covering index CDS as well as single-name CDS, and the terms that specify a particular CDS contract
“Index CDS cover a basket of equally weighted names; when one defaults, the seller pays that name's share of notional times its loss, and the index continues with a smaller notional.”
- Explain how credit default swaps can be used in an actively managed fixed-income portfolio
“Active uses include single-name views, credit curve trades (for example selling 5-year and buying 10-year protection), index CDS for macro or sector exposure, and basis trades that exploit gaps between bond and CDS spreads.”
See also
Practise it
Practise index cds until it is automatic: questions that explain every wrong option.
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