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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Conversion and default of contingent convertible bonds - a structural approach |
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| Institution | University of Zurich |
| Faculty | Faculty of Economics, Business Administration and Information Technology |
| Number of Pages | 28 |
| Date | 2015 |
| Abstract Text | In the last years, following the nancial crisis from 2008, dierent ideas have been developed and implemented how to stabilize the banks and the banking system in general. One approach is the strengthening of the capital basis of the banks through issuing contingent convertible bonds (CCB or CoCo's), that in case of trouble convert from liabilities to equity through a de ned triggering event. CCB should oer a long term protection to banks, similar to a long term insurance policy, that covers rare events with a certain threshold. They should also oer an investment opportunity to institutional investors in the times of low interest rates. The current work looks through the methods of Monte Carlo simulation into two particular details of the functioning of contingent convertible bonds (CCB's): the long term pricing and long term protection. One main result is that there is possibly an optimal issuing term from the point of view of the issuer, that in the discussed model is around 50 years for a CCB with conversion ratio of 0. The second main result is, that the frequency of default conditional on previous conversion is constant in time, and as expected lower for a high trigger than for a low one. |
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