Other tranches would cover the remaining percentiles of loss, and the sum of all tranches reproduces the exposure of the entire index. As I will discuss in a few minutes, one factor behind the complexity of credit index tranches is that the loss exposure depends not only on the level of defaults but also on the correlation of defaults across issuers.
Another instrument in the credit markets, similar to a credit index tranche, is the collateralized debt obligation, or CDO. A CDO pools a portfolio of fixed-income assets into a tranched liability structure that is familiar from other securitization markets. For example, banks have long used a similar liability structure to fund their credit card loans to consumers.