Case study - itraxx, Financial Management

Assignment Help:

(a) iTraxx is a group of credit derivative index managed by the International Index Company (IIC) and covering Europe and Asia and Australia. The body in the portfolio forming the indices are selected on the basis of trading volume and liquidity of the underlying CDS. For instance the iTraxx Europe index comprises of 125 investment grade names.

(b) The standard tranche for a credit index is a tranche with pre-specified lower as well as upper attachment point making it much more liquid than tranches created individually by negotiating with market makers. The subsequent are the standard attachment points representative the percentage of defaults protected by the seller of the tranche:

Equity tranche: first 0 - 3%

Mezzanine tranche: 3 - 6%

Senior tranche: 6 - 9%

Super senior tranche: 9 - 12%

(c) We can mention the subsequent few differences

Standardized tranches of credit indices are unfunded and hence no cash payment is involved whereas tranches of CDO's issued in the market by banks or else hedge funds may be funded and requires cash payment.

For the standardized tranches the fraction of default that it protects is previously determined on the other hand tranches of CDO's issued in the marketplace depends on the issuer (bank or hedge fund).

The underlying portfolios are probable to be different.

The standard tranches are additional liquid than tranches issued by banks and hedge funds.


Related Discussions:- Case study - itraxx

Rating methodologies of a debt instrument, The key parameters t...

The key parameters taken into account while rating a debt instrument are as follows: 1. Industry Evaluation - This involves an evaluation of the

Define accumulated depreciation, What is accumulated depreciation? Depr...

What is accumulated depreciation? Depreciation is the allocation of an initial cost over time of asset. Whereas the term accumulated depreciation is the total of all the deprec

What interest rate is required to yield a balance, Q.  A sum of $2,500 is d...

Q.  A sum of $2,500 is deposited in a bank account that pays 5.25% interest compounded weekly. How long will it take for the deposit to double?  How long will it take you to accrue

Securities, Calculate the expected rate of return and risk of return

Calculate the expected rate of return and risk of return

Role of sponsor, Role of Sponsor In the establishment of mutual fund tr...

Role of Sponsor In the establishment of mutual fund trust, the main role is played by the sponsors. Both the trustees and the fund managers or the asset management company have

What do you mean by hedge fund, Q. What do you mean by Hedge Fund? In t...

Q. What do you mean by Hedge Fund? In the easiest strategy a hedge fund borrows Hong Kong dollars (HKD) and then sells them in the market against USD that is they short the HKD

What are the motives of holding cash, Q. What are the Motives of Holding Ca...

Q. What are the Motives of Holding Cash? Motives of Holding Cash: - In every business assets are kept for the reason that they generate profit. But cash is an asset which doesn

hazard or risk , For this assessment, you are required to choose one workp...

For this assessment, you are required to choose one workplace hazard or risk to safety in the financial services industry that interests you. Prepare a report on the area you have

Capital budgeting assignment, Assignment 2 Decision Tree Assessing Alterna...

Assignment 2 Decision Tree Assessing Alternatives in Capital Budgeting [see Bailes, J.C., and Nielsen, J.F. (2001, Winter). Using decision trees to manage capital budgets. Manag

Advantages and disadvantages of foreign direct investment, What are the dis...

What are the disadvantages and advantages of Foreign direct investment (FDI) like opposed to a licensing agreement with a foreign partner? Answer:  The major advantage of FDI (

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd