Explaining the Pricing of Contingent Convertible Bonds

Released on by Marco Mengotti
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  • Explaining the Pricing of Contingent Convertible Bonds Book Detail

  • Author : Marco Mengotti
  • Release Date : 2015
  • Publisher :
  • Genre :
  • Pages :
  • ISBN 13 :
  • File Size : 6,6 MB
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Explaining the Pricing of Contingent Convertible Bonds by Marco Mengotti PDF Summary

Book Description: 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.

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