Download or read book The Impact of a New Coco Issuance on the Price Performance of Outstanding Cocos written by Jan De Spiegeleer and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we investigate the price performance of outstanding CoCos after a new CoCo issue is announced by the same issuer. Contingent Convertible bonds or CoCo bonds are new hybrid capital instruments that have a loss absorbing capacity which is enforced either automatically via the breaching of a particular CET1 level or via a regulatory trigger.When an issuer has already some CoCos outstanding and is announcing the issuance of a new CoCo bond, there are at least two opposite forces at work. On one hand, a new issue means that the capital of the issuing institute is strengthened (at the Additional Tier 1 or Tier 2 level). On the other hand, there are the market dynamics and investors often prefer to be rather invested in the new CoCo than in the older ones. We estimate the price impact on the outstanding CoCos via two methods. The first method basically compares the returns of the outstanding CoCo bonds after an announcement of a new issue with some overall CoCo indices. This method however does not take into account idiosyncratic movements and basically compares with the general market trend. A second model-based method, compares the actual market performance of the outstanding CoCo bonds, with a theoretical model performance taking into account idiosyncratic effects, like movements in the underlying stock, credit default spreads or volatilities.In total, we investigate 24 cases of new CoCo bond issues. The main conclusion of the investigation is that there is a moderated negative effect on outstanding CoCo bonds. This is confirmed by both methodologies and the impact is on average an underperformance of about 25 bps to 50 bps in between the announcement date and the issue date.
Download or read book Innovations in Derivatives Markets written by Kathrin Glau and published by Springer. This book was released on 2016-12-02 with total page 446 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book presents 20 peer-reviewed chapters on current aspects of derivatives markets and derivative pricing. The contributions, written by leading researchers in the field as well as experienced authors from the financial industry, present the state of the art in: • Modeling counterparty credit risk: credit valuation adjustment, debit valuation adjustment, funding valuation adjustment, and wrong way risk. • Pricing and hedging in fixed-income markets and multi-curve interest-rate modeling. • Recent developments concerning contingent convertible bonds, the measuring of basis spreads, and the modeling of implied correlations. The recent financial crisis has cast tremendous doubts on the classical view on derivative pricing. Now, counterparty credit risk and liquidity issues are integral aspects of a prudent valuation procedure and the reference interest rates are represented by a multitude of curves according to their different periods and maturities. A panel discussion included in the book (featuring Damiano Brigo, Christian Fries, John Hull, and Daniel Sommer) on the foundations of modeling and pricing in the presence of counterparty credit risk provides intriguing insights on the debate.
Download or read book Hybrid Securities written by Kamil Liberadzki and published by Springer. This book was released on 2016-04-08 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Contingent Convertible Bonds Corporate Hybrid Securities and Preferred Shares written by Marcin Liberadzki and published by Springer. This book was released on 2019-06-17 with total page 229 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book The Risk Management of Contingent Convertible CoCo Bonds written by Jan De Spiegeleer and published by Springer. This book was released on 2018-11-02 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book The Squam Lake Report written by Kenneth R. French and published by Princeton University Press. This book was released on 2010-05-25 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Understanding CoCos written by Robert Greene and published by . This book was released on 2017 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contingent convertible capital instruments (CoCos) are debt-like securities treated as bank regulatory capital that, upon a trigger event occurring, either convert to equity or are written-down. While regulations and tax and accounting rules preclude U.S. CoCo issuances, since 2009, many foreign jurisdictions have embraced CoCos, largely via Basel III-related rules. As a result, over $300 billion in CoCos have been issued. This working paper presents analyses of the buy-side and sell-side markets for CoCos, trends in the global CoCo market from its inception in 2009 through the CoCo market turmoil of early 2016, and CoCo-related risks facing issuers, investors, and policymakers in the years ahead. Academic literature on CoCos is examined, and the theoretical costs and benefits of various CoCo structures are discussed. Broadly, this working paper aims to assess (1) whether or not U.S. banks should be allowed or required to issue CoCos to meet regulatory capital requirements; and (2) how Congress and/or U.S. regulators should think about establishing regulations that set forth the permitted structural qualities of these instruments, thus enabling CoCos to be issued by U.S. banks. The benefits, costs, risks, and operational considerations of enabling CoCo issuances by large U.S. banks are assessed not just broadly, but also in the context of a particular legislative proposal by U.S. House Financial Services Committee Chairman Jeb Hensarling which would grant regulatory relief to banks meeting a "high, but simple" capital threshold.
Download or read book Can Contingent Convertibles Help Private Asset Managers Fund Their Acquisition of Non Performing Loans from Portuguese Banks written by Mr.Andre O Santos and published by International Monetary Fund. This book was released on 2019-05-07 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the capital structure of private asset managers in which the acquisition of nonperforming loans (NPLs) is funded with Contingent Convertibles (CoCos) placed with investors. The paper develops a model based on NPL transfer prices and residual recovery rates to assess capital structures consisting of CoCos and equity. The CoCos would contain put and call options to write down losses and write up profits, respectively, arising from liquidation and restructuring procedures. The paper concludes that the protection mechanism provided by debt write-downs embedded in CoCos and the incentives to investors provided by debt write-ups could help bridge the gap between Portuguese banks’ NPL bid prices and private equity firms’ ask prices.
Download or read book The Price of Liquidity written by Falko Fecht and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Capital Adequacy Beyond Basel written by Hal S. Scott and published by Oxford University Press. This book was released on 2005 with total page 355 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book The End of Alchemy Money Banking and the Future of the Global Economy written by Mervyn King and published by W. W. Norton & Company. This book was released on 2016-03-21 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt: “Mervyn King may well have written the most important book to come out of the financial crisis. Agree or disagree, King’s visionary ideas deserve the attention of everyone from economics students to heads of state.” —Lawrence H. Summers Something is wrong with our banking system. We all sense that, but Mervyn King knows it firsthand; his ten years at the helm of the Bank of England, including at the height of the financial crisis, revealed profound truths about the mechanisms of our capitalist society. In The End of Alchemy he offers us an essential work about the history and future of money and banking, the keys to modern finance. The Industrial Revolution built the foundation of our modern capitalist age. Yet the flowering of technological innovations during that dynamic period relied on the widespread adoption of two much older ideas: the creation of paper money and the invention of banks that issued credit. We take these systems for granted today, yet at their core both ideas were revolutionary and almost magical. Common paper became as precious as gold, and risky long-term loans were transformed into safe short-term bank deposits. As King argues, this is financial alchemy—the creation of extraordinary financial powers that defy reality and common sense. Faith in these powers has led to huge benefits; the liquidity they create has fueled economic growth for two centuries now. However, they have also produced an unending string of economic disasters, from hyperinflations to banking collapses to the recent global recession and current stagnation. How do we reconcile the potent strengths of these ideas with their inherent weaknesses? King draws on his unique experience to present fresh interpretations of these economic forces and to point the way forward for the global economy. His bold solutions cut through current overstuffed and needlessly complex legislation to provide a clear path to durable prosperity and the end of overreliance on the alchemy of our financial ancestors.
Download or read book Achieving Financial Stability Challenges To Prudential Regulation written by Douglas D Evanoff and published by World Scientific. This book was released on 2017-09-22 with total page 385 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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:
Download or read book Financial Instruments with Characteristics of Equity written by and published by . This book was released on 2018 with total page 147 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Dark Side of Bank Wholesale Funding written by Mr.Lev Ratnovski and published by International Monetary Fund. This book was released on 2010-07-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Banks increasingly use short-term wholesale funds to supplement traditional retail deposits. Existing literature mainly points to the "bright side" of wholesale funding: sophisticated financiers can monitor banks, disciplining bad but refinancing good ones. This paper models a "dark side" of wholesale funding. In an environment with a costless but noisy public signal on bank project quality, short-term wholesale financiers have lower incentives to conduct costly monitoring, and instead may withdraw based on negative public signals, triggering inefficient liquidations. Comparative statics suggest that such distortions of incentives are smaller when public signals are less relevant and project liquidation costs are higher, e.g., when banks hold mostly relationship-based small business loans.
Download or read book Rocky Times written by Yasuyuki Fuchita and published by Brookings Institution Press. This book was released on 2012 with total page 233 pages. Available in PDF, EPUB and Kindle. Book excerpt: "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)."
Download or read book An Introduction to Options Trading written by Frans de Weert and published by John Wiley & Sons. This book was released on 2011-02-15 with total page 154 pages. Available in PDF, EPUB and Kindle. Book excerpt: Explaining the theory and practice of options from scratch, this book focuses on the practical side of options trading, and deals with hedging of options and how options traders earn money by doing so. Common terms in option theory are explained and readers are shown how they relate to profit. The book gives the necessary tools to deal with options in practice and it includes mathematical formulae to lift explanations from a superficial level. Throughout the book real-life examples will illustrate why investors use option structures to satisfy their needs.
Download or read book Central Banking at a Crossroads written by Charles Goodhart and published by Anthem Press. This book was released on 2014-12-01 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book reflects on the innovations that central banks have introduced since the 2008 collapse of Lehman Brothers to improve their modes of intervention, regulation and resolution of financial markets and financial institutions. Authors from both academia and policy circles explore these innovations through four approaches: ‘Bank Capital Regulation’ examines the Basel III agreement; ‘Bank Resolution’ focuses on effective regimes for regulating and resolving ailing banks; ‘Central Banking with Collateral-Based Finance’ develops thought on the challenges that market-based finance pose for the conduct of central banking; and ‘Where Next for Central Banking’ examines the trajectory of central banking and its new, central role in sustaining capitalism.
