The Risk Management of Contingent Convertible (CoCo) Bonds PDF Download
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Author: Jan De Spiegeleer
Publisher: Springer
ISBN: 3030018245
Category : Mathematics
Languages : en
Pages : 109
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Book Description
This book provides an overview of the risk components of CoCo bonds. CoCos are hybrid financial instruments that convert into equity or suffer a write-down of the face value upon the appearance of a trigger event. The loss-absorption mechanism is automatically enforced either via the breaching of a particular accounting ratio, typically in terms of the Common Equity Tier 1 (CET1) ratio, or via a regulatory trigger. CoCos are non-standardised instruments with different loss-absorption and trigger mechanisms. They might also contain additional features such as the cancellation of coupon payments. Different pricing models are discussed in detail. These models use market data such as share prices, CDS levels and implied volatility in order to calculate the theoretical price of a CoCo bond and its sensitivities, providing the investor with insides to hedge from adverse changes in the market conditions. The audience are professionals as well as academics who want to learn how to risk manage CoCo bonds using cutting edge techniques as well as all the risk involved in CoCo bonds.
Author: Jan De Spiegeleer
Publisher: Springer
ISBN: 3030018245
Category : Mathematics
Languages : en
Pages : 109
Get Book Here
Book Description
This book provides an overview of the risk components of CoCo bonds. CoCos are hybrid financial instruments that convert into equity or suffer a write-down of the face value upon the appearance of a trigger event. The loss-absorption mechanism is automatically enforced either via the breaching of a particular accounting ratio, typically in terms of the Common Equity Tier 1 (CET1) ratio, or via a regulatory trigger. CoCos are non-standardised instruments with different loss-absorption and trigger mechanisms. They might also contain additional features such as the cancellation of coupon payments. Different pricing models are discussed in detail. These models use market data such as share prices, CDS levels and implied volatility in order to calculate the theoretical price of a CoCo bond and its sensitivities, providing the investor with insides to hedge from adverse changes in the market conditions. The audience are professionals as well as academics who want to learn how to risk manage CoCo bonds using cutting edge techniques as well as all the risk involved in CoCo bonds.
Author: Marcin Liberadzki
Publisher: Springer
ISBN: 3319925016
Category : Business & Economics
Languages : en
Pages : 243
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Book Description
This book is a comprehensive guide to the new generation of hybrid securities: subordinated and perpetual bonds with deferrable coupon first issued around 2003, and the youngest member of the hybrids family named CoCos (contingent convertibles) being a product of Basel III or European Union CRD IV regime (2014). Contingent capital constitutes a contractual recapitalization mechanism for troubled financial institutions. An increasing number of European banks have issued CoCo bonds in order to bolster their capital ratios. Following the EU pattern, CoCos issues have become increasingly popular within banks in Asia and the Pacific. The EU regulatory treatment of the contingent convertibles issued by banks and insurers together with bank bail-in instruments is at the forefront of the book. Furthermore, the book provides an overview of hybrids pricing and risk assessment approach and covers the non-voting preferred stocks as another hybrids class.
Author: Kenneth R. French
Publisher: Princeton University Press
ISBN: 1400835801
Category : Business & Economics
Languages : en
Pages : 182
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Book Description
A nonpartisan plan of action for fixing the global economy from fifteen of the world's leading economists In the fall of 2008, fifteen of the world's leading economists—representing the broadest spectrum of economic opinion—gathered at New Hampshire's Squam Lake. Their goal: the mapping of a long-term plan for financial regulation reform. The Squam Lake Report distills the wealth of insights from the ongoing collaboration that began at these meetings and provides a revelatory, unified, and coherent voice for fixing our troubled and damaged financial markets. As an alternative to the patchwork solutions and ideologically charged proposals that have dominated other discussions, the Squam Lake group sets forth a clear nonpartisan plan of action to transform the regulation of financial markets—not just for the current climate—but for generations to come. Arguing that there has been a conflict between financial institutions and society, these diverse experts present sound and transparent prescriptions to reduce this divide. They look at the critical holes in the existing regulatory framework for handling complex financial institutions, retirement savings, and credit default swaps. They offer ideas for new financial instruments designed to recapitalize banks without burdening taxpayers. To lower the risk that large banks will fail, the authors call for higher capital requirements as well as a systemic regulator who is part of the central bank. They collectively analyze where the financial system has failed, and how these weak points should be overhauled. Combining an immense depth of academic, private sector, and public policy experience, The Squam Lake Report contains urgent recommendations that will positively influence everyone's financial well-being—all who care about the world's economic health need to pay attention.
Author: Jan De Spiegeleer
Publisher: John Wiley & Sons
ISBN: 1118449991
Category : Business & Economics
Languages : en
Pages : 421
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Book Description
Introducing a revolutionary new quantitative approach to hybrid securities valuation and risk management To an equity trader they are shares. For the trader at the fixed income desk, they are bonds (after all, they pay coupons, so what's the problem?). They are hybrid securities. Neither equity nor debt, they possess characteristics of both, and carry unique risks that cannot be ignored, but are often woefully misunderstood. The first and only book of its kind, The Handbook of Hybrid Securities dispels the many myths and misconceptions about hybrid securities and arms you with a quantitative, practical approach to dealing with them from a valuation and risk management point of view. Describes a unique, quantitative approach to hybrid valuation and risk management that uses new structural and multi-factor models Provides strategies for the full range of hybrid asset classes, including convertible bonds, preferreds, trust preferreds, contingent convertibles, bonds labeled "additional Tier 1," and more Offers an expert review of current regulatory climate regarding hybrids, globally, and explores likely political developments and their potential impact on the hybrid market The most up-to-date, in-depth book on the subject, this is a valuable working resource for traders, analysts and risk managers, and a indispensable reference for regulators
Author: Kamil Liberadzki
Publisher: Springer
ISBN: 113758971X
Category : Business & Economics
Languages : en
Pages : 228
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Book Description
Hybrid capital securities or 'hybrids' offer various benefits. They offer flexibility equity without shareholder dilution, provide protection to senior creditors, are a stable source of long-term funding for healthy companies, and help insurers and banks meet regulatory and rating agency capital requirements. Risks and features of hybrid securities are expressed in the credit spread of some relatively new financial instruments, but no structural fundamentals exist for to price hybrids precisely. This book proposes a model for the pricing of hybrids. It begins by explaining the concept of hybrids as well as their equity- and debt-like characteristics. Different types of hybrids are presented, including preference shares, convertible bonds, contingent convertibles (CoCos) and bail-in bonds. The authors then present analysis of regulatory regimes' impact on hybrids. They discuss the types of hybrid bonds that are contemplated in the Capital Requirements Regulation (CRR) and Banking Union mechanism. They then present an in-depth examination of hybrids pricing and risk assessment techniques. The book provides a comprehensive analysis from mathematical, legal and financial perspectives in order to look at relatively new financial instruments and address problems with the pricing models of hybrids which are as yet unsolved.
Author: Douglas D Evanoff
Publisher: World Scientific
ISBN: 9813223413
Category : Business & Economics
Languages : en
Pages : 385
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Book Description
The Great Financial Crisis of 2007-2010 exposed the existence of significant imperfections in the financial regulatory framework that encouraged excessive risk-taking and increased system vulnerabilities. The resulting high cost of the crisis in terms of lost aggregate income and wealth, and increased unemployment has reinforced the need to improve financial stability within and across countries via changes in traditional microprudential regulation, as well as the introduction of new macroprudential regulations. Amongst the questions raised are:
Author: Frédéric Vrins
Publisher: MDPI
ISBN: 3039287605
Category : Business & Economics
Languages : en
Pages : 190
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Book Description
Credit risk remains one of the major risks faced by most financial and credit institutions. It is deeply connected to the real economy due to the systemic nature of some banks, but also because well-managed lending facilities are key for wealth creation and technological innovation. This book is a collection of innovative papers in the field of credit risk management. Besides the probability of default (PD), the major driver of credit risk is the loss given default (LGD). In spite of its central importance, LGD modeling remains largely unexplored in the academic literature. This book proposes three contributions in the field. Ye & Bellotti exploit a large private dataset featuring non-performing loans to design a beta mixture model. Their model can be used to improve recovery rate forecasts and, therefore, to enhance capital requirement mechanisms. François uses instead the price of defaultable instruments to infer the determinants of market-implied recovery rates and finds that macroeconomic and long-term issuer specific factors are the main determinants of market-implied LGDs. Cheng & Cirillo address the problem of modeling the dependency between PD and LGD using an original, urn-based statistical model. Fadina & Schmidt propose an improvement of intensity-based default models by accounting for ambiguity around both the intensity process and the recovery rate. Another topic deserving more attention is trade credit, which consists of the supplier providing credit facilities to his customers. Whereas this is likely to stimulate exchanges in general, it also magnifies credit risk. This is a difficult problem that remains largely unexplored. Kanapickiene & Spicas propose a simple but yet practical model to assess trade credit risk associated with SMEs and microenterprises operating in Lithuania. Another topical area in credit risk is counterparty risk and all other adjustments (such as liquidity and capital adjustments), known as XVA. Chataignier & Crépey propose a genetic algorithm to compress CVA and to obtain affordable incremental figures. Anagnostou & Kandhai introduce a hidden Markov model to simulate exchange rate scenarios for counterparty risk. Eventually, Boursicot et al. analyzes CoCo bonds, and find that they reduce the total cost of debt, which is positive for shareholders. In a nutshell, all the featured papers contribute to shedding light on various aspects of credit risk management that have, so far, largely remained unexplored.
Author: Yasuyuki Fuchita
Publisher: Brookings Institution Press
ISBN: 0815722508
Category : Business & Economics
Languages : en
Pages : 233
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Book Description
"A Brookings Institution Press and Nomura Institute of Capital Markets Research publication It has been four years since the financial crisis of 2008, and the global financial system still is experiencing malaise caused by high rates of unemployment; a lingering, unresolved supply of foreclosed properties; the deepening European debt crisis; and fear of a recurrence of the bank turmoil that brought about the Great Recession. All of these factors have led to stagnant economic growth worldwide. In Rocky Times, editors Yasuyuki Fuchita, Richard J. Herring, and Robert E. Litan bring together experts from academia and the banking sector to analyze the difficult issues surrounding troubled large financial institutions in an environment of economic uncertainty and growing public anger. Continuing the format of the previous Brookings-Nomura collaborations, Rocky Times focuses largely on developments within the United States and Japan but looks at those in other nations as well. This volume examines two broad areas: the Japanese approach to regulating financial institutions and promoting financial stability and the U.S. approach in light of the Dodd-Frank Act. Specific chapters include ""Managing Systemwide Financial Crises: Some Lessons from Japan since 1990,"" ""The Bankruptcy of Bankruptcy,"" ""The Case for Regulating the Shadow Banking System,"" ""Why and How to Design a Contingent Convertible Debt Requirement,"" and ""Governance Issues for Macroprudential Policy in Advanced Economies."" Contributors: Gavin Bingham (Systemic Policy Partnership, London), Charles W. Calomiris (Columbia Business School), Douglas J. Elliott (Brookings Institution), Kei Kodachi (Nomura Institute of Capital Markets Research), Morgan Ricks (Vanderbilt Law School)."
Author: Hal S. Scott
Publisher: Oxford University Press
ISBN: 0195169719
Category : Business & Economics
Languages : en
Pages : 355
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Book Description
The research contained in this book covers some key issues at stake in the capital requirements for insurance and securities firms. Contributors analyse the use of subordinated debt, internal models, and rating agencies in addition to examining the effect on capital of reinsurance and similar instruments.
Author: Brian Coyle
Publisher: Global Professional Publishi
ISBN: 9780852974575
Category : Business & Economics
Languages : en
Pages : 172
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Book Description
From the "Risk Management" series, this is a concise and practical guide to financial instruments that are made up of two or more other instruments. The term "hybrid" has come to cover a wide range of financial products and this book seeks to explain the more commonly used ones. They are examined from the perspective of both ......
