In this example, I am confused how they have calculated initial iTraxx index price.
We can estimate the initial iTraxx-Xover price by subtracting the product of EffSpreadDurCDS and the difference between the standard coupon (5%) from the market premium of 400 bps as follows:
Original iTraxx-Xover 5-year: 95.75 per $100, or 0.9575 (=1 − (4.25 × 1.00%))
Why are they subtracting the difference? Are we not supposed to use this formula to calculate the price?
CDS Price ≈ 1 + ((Fixed Coupon − CDS Spread) × EffSpreadDurCDS)
Here, they are using
CDS Price ≈ 1 - ((Fixed Coupon − CDS Spread) × EffSpreadDurCDS)
Is there the difference because we are pricing an index?