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
  CFA Level I · Derivatives

  “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
  CFA Level II · Fixed Income

  “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
  CFA Level III · Portfolio Management Pathway

  “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

Credit default swap

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with I · Glossary