Basket Of Credit Risks

From Open Risk Manual


Basket Of Credit Risks. A basket of securities and / or legal entities, collected for the purpose of constructing a customized Credit Risk profile


From OTPP: Variety: Criteria for constituent entities are based on

  • sectors (emerging market, financial, sovereign, etc)
  • spread range (investment grade, non-investment grade)
  • asset type (loan, bond, mortgage-backed, asset-backed)

Secondary criteria are based on maturity of protection (2,3,5,7,10 yrs). Constituents can be on multiple indexes, based on maturity, etc.

Premiums are standard and set depending on the composite spread at the initiation of the index, with upfront-fees to get into a deal thereafter depending on changes in the MTM of the spread.

The payout per constituent credit-event is ~ Notional x weight.

Whereas this may be a basket of securities just like a "Basket" in the sense used in reference indices and in derivatives with basket underlyers, in this instance the constituents of the basket are collected, and are defined as constituents, in the context of the credit risks that they represent and not in the context of their market price as securities.


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