Attachment point and detachment point | Glossary

The attachment point is the level of portfolio losses at which a tranche starts to take losses. The detachment point is the level at which, once losses reach it, the tranche has lost its entire notional.

Both levels are expressed as a percentage of the portfolio's notional. The notional of a tranche is the width between the two points (the detachment point minus the attachment point) multiplied by the portfolio's notional.

Consider a hypothetical example in which a 100 billion yen portfolio has a tranche with an attachment point of 5% and a detachment point of 15%. No loss hits the tranche until losses reach 5 billion yen. If losses are 10 billion yen, the tranche loses 10 billion − 5 billion = 5 billion yen. If losses are 15 billion yen or more, it loses its entire 10 billion yen notional.

The tranches below the attachment point act as a cushion that protects the tranche. For tranches on CDS indices, the levels are measured by loss after recovery, and the ranges are updated each time a name defaults.

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