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A credit default swap index is a credit derivative used to hedge credit risk or to take a position on a basket of credit entities. Unlike a credit default swap, which is an over the counter credit derivative, a credit default swap index is a completely standardized credit security and may therefore be more liquid and trade at a smaller bid–offer spread.
Markit Group Limited marketed the ABX index and by 2007 had acquired (CDS IndexCo). On 17 The ABX index was a credit default swap of asset-backed mortgages of 30 of the most liquid mortgage-backed bonds. Hedge funds began shorting that ABX index in early 2006 at par. The Deutsche Bank, alone, reportedly made $250 million.
Credit default swaps in their current form have existed since the early 1990s and increased in use in the early 2000s. By the end of 2007, the outstanding CDS amount was $62.2 trillion, [3] falling to $26.3 trillion by mid-year 2010 [4] and reportedly $25.5 [5] trillion in early 2012.
A CLN in effect combines a credit-default swap with a regular note (with coupon, maturity, redemption). Given its note-like features, a CLN is an on-balance-sheet asset, in contrast to a CDS. Typically, an investment fund manager will purchase such a note to hedge against possible down grades, or loan defaults.
Index funds are mutual funds or exchange-traded funds (ETFs) that have one simple goal: To mirror the market or a portion of it. For example, an S&P 500 index fund tracks the collective ...
Credit default swap indices allow an investor to transfer credit risk in a more efficient manner than using groups of single credit default swaps. They are standardised contracts and reference a fixed number of obligors with shared characteristics. Investors can be long or short the index which is equivalent to being protection buyers or sellers.
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