Modelling CDS index instruments in LUSID

This page is under construction.
 

Providing you are a LUSID user with sufficient access control permissions, you can create an instrument to model a credit default swap index in the LUSID Security Master:

• Q: Is LUSID modelling credit events on CDS trades?
  A: Not yet. At the moment the CDS trades (both single-name and index CDS) are supported as tradeable instruments only. If there is a credit event, for example one of the entities underlying the Index CDS defaults, any payoffs or weighting factor changes that result from the credit event have to be updated manually in LUSID. It is a gap that we are planning to close in 2024.
• Q: Do I need to set up a basket of single-name CDS trades when booking an index CDS?
  A: No. This is no longer a mandatory field. The majority of index CDS trades no longer have a basket of single-name CDS trades as underlying and are instead synthetic instruments.
• Q: Does LUSID consider CDS trades to be leggy instruments?
  A: Yes. The LUSID DTO for CDS trades does not show this explicitly because it has been kept compact for ease of use. Inside LUSID all CDS trades have two legs; see this article. The legs are built from the CDS flow conventions. There are also leg-level address keys available. There is no need to book a separate fixed legs and then link this to the CDS instrument.
• Q: Where do I enter the credit events covered by the CDS trade?
  A: For single-name CDS trades these are entered in the protectionDetailSpecification object on the DTO; there is a choice of restructuring clauses [CR, MR, MM, XR]. For an index CDS this information is not currently captured, as the index CDS was originally modelled as a basket of single-name CDS trades which all would have their protection details already specified. As part of adding the modelling of credit events the protectionDetailSpecification will also be added to the index CDS DTO.
• Q: Why is the notional field optional on the CDS instrument?
  A: It is only technically optional in the definition of the DTO - a notional has to be set.
• Q: Do you recommend unitising the CDS trades?
  A: Yes. Credit derivatives originiated in the OTC market, but they have undergone a significant amount of standardisation that now makes them behave more like traded securities.