What is Loan Credit Default Swap Index ?

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The Loan Credit Default Swap Index (Markit LCDX) is a specialized index of loan-only credit default swaps (CDS) covering 100 North American companies with unsecured debt trading in broad secondary markets. The LCDX is traded over-the-counter, and several large investment banks manage it, provide liquidity, and assist in pricing individual credit default swaps. IHS Markit Ltd, headquartered in London, is the index provider.

Definition

The Loan Default Swap Index (Markit LCDX) is a specialized financial index that includes loan-only credit default swaps (CDS) on the unsecured debt of 100 North American companies traded in the broad secondary market.

Origin

This index is provided by IHS Markit Ltd, headquartered in London, and is designed to offer investors a tool to measure the default risk of North American company loans. It is traded over-the-counter and managed by several large investment banks to provide liquidity and assist in pricing individual credit default swaps.

Categories and Features

The Loan Default Swap Index is primarily used to measure and hedge credit risk in the loan market. Its features include: 1. Focus on credit default swaps of unsecured debt; 2. Liquidity support from multiple investment banks; 3. Traded over-the-counter, offering high flexibility.

Case Studies

Case 1: During the 2008 financial crisis, many investors used the LCDX to hedge their risks in the North American company loan market. Case 2: In 2015, a major investment bank used the LCDX to manage the credit risk of its loan portfolio, successfully avoiding potential default losses.

Common Issues

Investors may encounter liquidity issues when using the LCDX, especially during high market volatility. Additionally, misunderstanding its differences from other credit default swap products can lead to incorrect investment decisions.

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