Valuation of Loan CDS and Synthetic Loan CDO with Prepayment Risk
نویسنده
چکیده
Corporate loans tend to be secured, comprising the most senior part of the high-yield capital structure. Trading in loan credit default swap (LCDS) has increased rapidly over the past few years. Only syndicated secured loans of the designated priority (1 Lien, 2 Lien, etc.) are deliverable into the contract and a LCDS contract can be prepaid (cancelled) when no senior secured loan of the designated priority can be found. An index of LCDS, called the LCDX index and referencing 100 syndicated secured 1 lien loans in North America, have started to trade in May 2007. Individual tranches of LCDX have started to trade in August 2007. Daily volume of LCDX markets has reached billions and increased rapidly.
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