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

What is rationale and behind profitability maximisation, What is Rationale ...

What is Rationale and behind profitability maximisation Rationale & behind profitability maximisation, as a guide to financial decision making, is simple. Profit is a test of e

Portfolio Management, Portfolio Project The purpose of this project is to h...

Portfolio Project The purpose of this project is to help you to gain an understanding of how the stock market works and of the relationship between theory and practice. You are gi

Venture Capital, Difference between venture capital and conventional financ...

Difference between venture capital and conventional financing

Investable capital market portfolio, The Total Investable Capital Market Po...

The Total Investable Capital Market Portfolio According to a report prepared by McKinsey in January 2007, World financial assets including bonds, stocks, corporate debt securit

Evaluae new options within current organization, Q. Evaluae new options wit...

Q. Evaluae new options within current organization? Evaluating having completed self marketing successfully to prospective employers it is time to analyze new options within cu

Option-adjusted spread (oas) - total return, The horizon price ...

The horizon price can be determined by incorporating Option-Adjusted Spread (OAS) into a total return analysis. But this requires a valuation mo

Financial management, What is Financial Management? Anybody can describe it...

What is Financial Management? Anybody can describe it.

Conversion ratio, It is the number that tells how many common stock...

It is the number that tells how many common stocks (or preference stocks) will the bondholder receive at the time of conversion. It is usually constant over

Capital asset pricing model - working with beta, Your research assistant we...

Your research assistant went home early (rock concert related illness) and left you with the following table listing the expected returns, standard deviation, correlation with the

Investment strategy of hedge funds, Investment Strategy OF HEDGE FUNDS ...

Investment Strategy OF HEDGE FUNDS After the Funds are raised from genuine investors, the next step for Hedge Funds is to invest them as per the investment objectives and strat

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