In a credit default swap index, the credit risk of a standardized basket of reference entities is transferred between the protection buyer and protection seller with the contract continuing even if there is a credit event for any of the reference entities in the basket but at a lower premium to reflect the credit protection for less reference entities.

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Quizplus · Accepted Answer

This statement accurately describes the features of a credit default swap index. The index involves a standard basket of reference entities, and the contract continues even if a credit event occurs for any of those entities. However, the premium will be lower to reflect the reduced credit risk associated with fewer reference entities remaining in the basket.

In a Credit Default Swap Index, the Credit Risk of a Standardized