Download or read book Market Analysis and Price Development of Contingent Convertible Bonds written by and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Contingent Convertible bonds are a new form of capital banks issue to meet the new capital requirements regulators put in place in response to the shortcomings revealed by the financial crisis. Besides their basic characteristic of being converted from debt to equity or written down once a stress-related predefined trigger is breached, there exist a wide variety of possible designs. We examine the latest developments in this fast-growing and quickly changing market by analyzing the recent issuances and observe the capital-based trigger level and the loss absorption mechanism as the two main design characteristics Cocos can be differentiated in practice. In the empirical part, we compare the price development of a sample of twelve Cocos with the price development of other matched debt and equity securities of the same bank, both in general and dependent on the key design elements we classified. As our analysis shows, the risk of Cocos perceived by market participants, measured by the volatility of returns, is in line with their position in the balance sheet hierarchy but we find support for the concerns that prices do not adequately reflect the true risks. Furthermore, using Pearson and Spearman correlation, we find the price development differs the most when differentiating along the capital-based trigger level. The prices of Coco bonds seem to be influenced the most by factors affecting the price development of equity since our overall results show the highest correlation between Coco returns and equity returns and the coefficients are significant. We finally identify the lack of standardization as the biggest impediment to be overcome to ensure the future growth of the Coco market.

Download or read book The Pricing of already issued Contingent Convertible Bonds CoCo Bonds written by Melanie Prossliner and published by GRIN Verlag. This book was released on 2013-01-08 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2011 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,2, University of Innsbruck (Banking and Finance), course: Risk Management, language: English, abstract: In the year 2007 one of the biggest financial crisis in worlds history has begun. It leads to the bankruptcy of huge financial institution followed by the bailout of banks through the national government and a downturn in worldwide stock markets. The financial crisis has also shown that the capitalizations of numerous financial institutes were not adequate and several components of banks equity could not fulfil their planned function. To save the global financial system from collapsing many banks received lot of money from the government. To avoid another future crisis and huge bailouts by the national government, some financial experts and leading economists proposed a new financial instrument, called Contingent Convertibles Bonds (“CoCo-Bonds”). They are considered to be an opportunity to improve the equity base of banks in times of crisis. CoCo-Bonds are a special form of bonds, which convert automatically to equity after a predefined incidence. Three large banks have already issued these new financial instruments; The Lloyds Banking Group (2009), Rabobank (2010) and the Credit Suisse (2011). The aim of this paper is to analyse the structure and the pricing of these already issued CoCo- Bonds. In the first part the functionality of the CoCo-Bonds will be explained. It will also provide a summary of the specification of the already issued CoCo-Bonds. The third part, which is the main part, is focused on the pricing modalities of these new financial instruments. Two different approaches will be considered. First the credit derivatives approach and seconds the equity derivatives approach. In the end of the paper both approaches will be applied to the already issued CoCo-Bonds of Lloyds and Credit Suisse.

Download or read book The Handbook of Hybrid Securities written by Jan De Spiegeleer and published by John Wiley & Sons. This book was released on 2014-05-19 with total page 421 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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

Download or read book Explaining the Pricing of Contingent Convertible Bonds written by Marco Mengotti and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis presents a comprehensive analysis of contingent convertible bonds. CoCo bonds automatically convert from debt to equity if a predetermined ratio of equity capital to risk-weighted assets is undercut. Since the recent financial crisis undeniably revealed that the capital requirements must be continuously adjusted to the changing circumstances in order to ensure a functional regulation, there is presently a great demand for action concerning the capital endowments of banks. Since the conversion trigger is a crucial characteristic of contingent convertible bonds, this work analyses the conversion margins for one hundred CoCo bonds since 2012 and elucidates a methodology to estimate conversion probabilities for future quarters. It is subsequently researched, whether potential coherences between the conversion margins and the observable market prices can be found. Results reveal that the observed capital ratios ought to decrease on average by about 50 percent to force a conversion. No significant correlation between correlation margins and prices can be determined. In summary this can be explained by the high conversion margins and the rather short data time series.

Download or read book Mind the Conversion Risk a Theoretical Assessment of Contingent Convertible Bonds written by Gaëtan LeQuang and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book International Handbook of Convertible Securities written by Thomas Noddings and published by Routledge. This book was released on 2013-12-16 with total page 394 pages. Available in PDF, EPUB and Kindle. Book excerpt: First published in 2001. The revision of this important work contains all new data on the long-overlooked convertible securities market. It offers invaluable information on the analytical as well as the statistical tools which investors need to add quality to their investment portfolios. Topics include: * Convertible securities as an asset class and as an alternative investment * Market capitalization of convertible securities * An overview of the equity warrant market * Special provisions in the warrant markets * Finding undervalued warrants * Convertible bond hedging strategies * Portfolio management.

Download or read book The Handbook of Convertible Bonds written by Jan De Spiegeleer and published by John Wiley & Sons. This book was released on 2011-07-07 with total page 400 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a complete guide to the pricing and risk management of convertible bond portfolios. Convertible bonds can be complex because they have both equity and debt like features and new market entrants will usually find that they have either a knowledge of fixed income mathematics or of equity derivatives and therefore have no idea how to incorporate credit and equity together into their existing pricing tools. Part I of the book covers the impact that the 2008 credit crunch has had on the markets, it then shows how to build up a convertible bond and introduces the reader to the traditional convertible vocabulary of yield to put, premium, conversion ratio, delta, gamma, vega and parity. The market of stock borrowing and lending will also be covered in detail. Using an intuitive approach based on the Jensen inequality, the authors will also show the advantages of using a hybrid to add value - pre 2008, many investors labelled convertible bonds as 'investing with no downside', there are of course plenty of 2008 examples to prove that they were wrong. The authors then go onto give a complete explanation of the different features that can be embedded in convertible bond. Part II shows readers how to price convertibles. It covers the different parameters used in valuation models: credit spreads, volatility, interest rates and borrow fees and Maturity. Part III covers investment strategies for equity, fixed income and hedge fund investors and includes dynamic hedging and convertible arbitrage. Part IV explains the all important risk management part of the process in detail. This is a highly practical book, all products priced are real world examples and numerical examples are not limited to hypothetical convertibles. It is a must read for anyone wanting to safely get into this highly liquid, high return market.

Download or read book Contingent Convertibles Cocos A Potent Instrument For Financial Reform written by George M Von Furstenberg and published by World Scientific. This book was released on 2014-08-08 with total page 287 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contingent Convertibles (CoCos) represent debt that is subject to being converted automatically into common equity under pre-specified terms of conversion if the chosen regulatory capital ratio falls to a level triggering conversion. CoCos are that subspecies of contingent capital that references regulatory (Basel III) concepts in its triggers. From 2014, trigger points are set by common equity (Common Equity Tier 1 [CET1]) in percent of risk-weighted assets [RWA] or of more complicated measures of total exposure to a variety of risks, particularly credit risk. This is the first comprehensive book on CoCos, an innovative instrument that has attracted growing attention since it was first issued in 2009.The book is mostly concerned with going-concern ‘recovery-’ rather than ‘resolution-’ CoCos, because avoiding failure and costly disruption of financial networks without government financing is the first order of business. CoCos hold a high promise of providing fully loss-absorbing equity capital when it is most needed and least available to financial institutions. Yet, having grown out of the 2007-2009 financial crisis, they are still an ‘infant’ reform instrument in many respects. Few of the instrument's design features (or even the rating, regulatory, and tax treatments) are entirely settled. This book seeks to move the discussion toward, and then past, the main decision points so that CoCos can prove their value for contingency planning and self-insurance all over the world. It is intended to increase the ability of issuers and investors to analyze and understand the different kinds of CoCos.

Download or read book Convertible Bonds Demystified written by Sheridan Yvon and published by Trafford Publishing. This book was released on 2010-11 with total page 279 pages. Available in PDF, EPUB and Kindle. Book excerpt: CONVERTIBLE BONDS AN INVESTMENT FOR ALL SEASONS In this book we will discover There are only five ( 5 ) major terms that we need to understand in order to be able to invest safely and profitably in Convertible bonds. The secret of how a Convertible bond automatically switches itself from a bond investment to an equity investment through its own internal mechanism. A list of four hundred and sixty-eight Convertible bonds (468) including fourteen main criteria (14) for each Convertible bond. A proven twenty-year ( 20 ) investment program described step by step and understandable by everybody. The Sheridan Market-Neutral hedge investment program proven twenty-year (20) investment program. We will invest in one of the safest investment around Our investment programs should yield an average net return of fifteen percent yearly (15%), on a cash investment basis. Our average holding period per investment should be from two years (2) to five years (5). By the end of the book, we will be able to set up a Convertible bond investment program on our own and become our own money manager.

Download or read book Convertible Bond Markets written by George A Philips and published by Springer. This book was released on 1997-05-07 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt: The convertible bond market has recently gained increasing significance on a global basis with particularly notable growth among very fast growing companies hungry for capital. Philips' Convertible Bond Markets is a comprehensive assessment of this market place, illustrating clearly how investors of all risk persuasions may best utilise the instrument. It will be of great interest both to academics and to professionals including equity fund managers, bond fund managers, 'swaps' teams, stock loan departments, risk controllers, treasurers and proprietary traders.

Download or read book Contingent Conversion Convertible Bond written by Francesca Di Girolamo and published by . This book was released on 2013 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides an in-depth analysis into the structuring and the pricing of an innovative financial market product. This instrument is called contingent conversion convertible bond or "CoCoCo". This hybrid bond is itself a combination of two other hybrid instruments: a contingent convertible ("CoCo") and a convertible bond. This combination introduces more complexity in the structure but it now allows investors to profit from strong share price performances.This upside potential is added on top of the normal contingent convertible mechanics whereas CoCos only expose the investors to downside risk. This sets up a new avenue for the banks to create new capital. First, we explain how the features of the contingent convertible bonds on one side and the features of the standard convertible bonds on the other side are combined. Thereafter, we propose a pricing approach which moves away from the standard Black & Scholes setting. The CoCoCos are evaluated using the Heston process to which a Hull-White interest rate process has been added. We demonstrate the importance of using a stochastic interest rate when modeling this instrument. Finally we quantify the loss absorbing capacity of this instrument.

Download or read book Contingent Convertible CoCo Bonds written by Sascha Wilkens and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: With several banks issuing substantial amounts of contingent convertible (“coco”) bonds since 2009 this paper is the first to analyse empirically the suitability of selected pricing models that have been proposed for this kind of instrument. The analysis of coco bond issues by major banks shows that all tested approaches - a structural, an equity derivatives and a credit derivatives model - are largely able to fit observed coco bond prices. Regarding the derivation of hedge ratios, however, all models are found to exhibit biases. Overall, the results point to the equity derivatives model with its straightforward parameterisation and interpretation as the comparatively most promising approach for the practical pricing and risk management of coco bonds. Given the limited set of bonds and time series available for the analysis, more empirical research into the still young market is required.

Download or read book Contingent Convertible Bonds written by and published by . This book was released on 2015 with total page 348 pages. Available in PDF, EPUB and Kindle. Book excerpt: Part I of this thesis introduces the reader to the economic foundation of contingent convertible bonds as a potential measure to reduce the systemic risk of financial institutions. Additionally, a literature review is presented and developments in financial regulation are discussed. In part II the characteristic elements of coco bonds are explained and discussed in detail. The conversion trigger and the conversion mechanism are the most important design features of coco bonds and the reader is familiarized with the various possibilities of how these design features can be specified. Additionally, potential risks of coco bonds are discussed and a distinction of coco bonds from other convertibles is given. Part III analyzes the pricing of coco bonds applying an equity derivative model. A formal description of coco bonds is introduced and the valuation framework is explained. More specifically, coco bonds are priced as a portfolio consisting of two components, (1) a coupon bond and (2) some number of short put options on the stock of the coco issuer. In our pricing analysis of the Credit Suisse Buffer Capital Notes it is found that the auto-triggered put model overestimates the yield of the 7.875% BCN just about 0.05 percentage points and it underestimates the yield of the 7.125% BCN by 0.35 percentage points. Hence, the auto-triggered put model yields a simple formula to evaluate the prices and yields of contingent convertible bonds. Part IV presents an empirical analysis of contingent convertible bonds. In a first chapter, important drivers of coco bond returns are identified and analyzed applying a linear regression framework. It is found that cds spread changes as well as stock returns of the coco bond issuer significantly explain the returns of contingent convertible bonds. Moreover, our analysis shows that changes in riskless interest rates do not significantly explain the returns of coco bonds. A second chapter investigates.

Download or read book An Analysis of Convertible Bonds Issuances in Developed Financial Markets written by Rana Mohamed Zaki and published by . This book was released on 2018 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book An Analysis of the Nature of Convertible Bonds written by Gary Ralph Stone and published by . This book was released on 1967 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Corporate Bonds in Germany Market and Valuation written by Eckhard Scharmer and published by GRIN Verlag. This book was released on 2004-03-04 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2003 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,7 (A-), European Business School - International University Schloß Reichartshausen Oestrich-Winkel (Department for Asset Management), language: English, abstract: The German corporate bond market is, like many other markets, subject to a constant development: New external conditions and changes in our economic environment always trigger new trends that can be observed when analysing the structure of capital markets. Particularly during the last months, a new significant tendency could be observed in Germany: As market statistics indicate, more and more German corporations decide to issue equity-linked securities such as convertible bonds instead of raising capital using straight corporate bonds or equity. Consequently, investors are now faced with a new asset class beyond debt, cash or equity. This implies more opportunities but also bears some risks, problems and pitfalls as each convertible has specific characteristics and covenants which have to be taken into account by the investor. The purpose of this study is to reveal the reasoning behind the growing popularity of convertibles within the German corporate bond landscape. In this context, the consequences and opportunities for the investor are emphasized as the paper shows how asset managers can benefit from the particular characteristics of convertibles. Moreover, the price reaction of the underlying share price on an announcement of a convertible issue will be analysed. In order to avoid a too theoretical approach, two extraordinary equitylinked issues that took place in Germany in 2003 are discussed and compared.

Download or read book Convertible Securities written by Montgomery Rollins and published by . This book was released on 1908 with total page 218 pages. Available in PDF, EPUB and Kindle. Book excerpt: