July 2009
Beginner
368 pages
8h 13m
English
book
Leveraged Finance: Concepts, Methods, and Trading of High-Yield Bonds, Loans, and Derivatives
by STEPHEN J. ANTCZAK, DOUGLAS J. LUCAS, FRANK J. FABOZZI
Content preview from Leveraged Finance: Concepts, Methods, and Trading of High-Yield Bonds, Loans, and Derivatives
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
CHAPTER 8
Index Tranches
In the previous chapter, we introduced the synthetic markets, with a ■ focus on credit default swaps and the credit indexes. This chapter takes a closer look at the credit and loan indexes (CDX and LCDX, respectively) and the unique feature of “tranching.”23 This means that the cash flows for the overall index can be divided among holders of different portions of total credit risk, which are referred to as index tranches.
The chapter is divided into two parts. In the first part we discuss the basic mechanics of the tranche market. The second part will focus on the LCDX tranche market and the special features of LCDX tranches (such as high recoveries and cancellation events). In addition, we will evaluate whether synthetic tranches are interchangeable with cash tranches and identify some of the similarities and differences.
BASIC MECHANICS OF THE TRANCHE MARKET
The basic building block of an index tranche is a static index portfolio. The most widely traded index tranches are based on the standard credit default swap (i.e., CDS) indexes that we described in the previous chapter: CDX (IG, HY, LCDX) and iTraxx (Main). These indexes are typically equal-weighted static portfolios. CDX.HY and LCDX contain 100 names in their portfolios, while iTraxx Main and CDX.IG contain 125 names.
As we learned in the previous chapter, the indexes provide investors with a tool to efficiently and effectively hedge their corporate bond exposure or to express views on the ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.