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The risk management of contingent convertible (coco) bonds

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The risk management of contingent convertible (coco) bonds

SPRINGER BRIEFS IN FINANCEJan De Spiegeleer Ine Marquet Wim SchoutensThe Risk Management of Contingent Convertible (CoCo) BondsSpringerMore informatio

The risk management of contingent convertible (coco) bondson about (his series at httpư/www.springcr.com/scrics/10282Jan De Spiegeleer • Ine Marquet Wim SchoutcnsThe Risk Management of Contingent Convertible

(CoCo) Bonds4^ SpringerJan De Spiegeleer Department of Mathematics University of Leuven Leuven, Belgiuminc MarquctSint-Truiden. BelgiumWim SchoutensDe The risk management of contingent convertible (coco) bonds

partment of Mathematics University of Leuven Leuven. BelgiumISSN 2193-1720ISSN 2193-1739 (electronic)SpringerBricfs in FinanceISBN 978-3-030-01823-8IS

The risk management of contingent convertible (coco) bonds

BN 978-3-O3O-OI824-5 (eBook)https://doi.org/! 0.1007/978-3-030-01824-5Library of Congress Control Number: 2018958496Í3 The Authorts). under exclusive

SPRINGER BRIEFS IN FINANCEJan De Spiegeleer Ine Marquet Wim SchoutensThe Risk Management of Contingent Convertible (CoCo) BondsSpringerMore informatio

The risk management of contingent convertible (coco) bondsf the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on mic

rofilms or in any other physical way. and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar o The risk management of contingent convertible (coco) bonds

r dissimilar methodology now known or hereafter developed.The use of general descriptive names, registered names, trademarks, service marks, etc. in t

The risk management of contingent convertible (coco) bonds

his publication docs not imply, even in the absence of a specific statement, that such names arc exempt from the relevant protective laws and regulati

SPRINGER BRIEFS IN FINANCEJan De Spiegeleer Ine Marquet Wim SchoutensThe Risk Management of Contingent Convertible (CoCo) BondsSpringerMore informatio

The risk management of contingent convertible (coco) bonds believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied

, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to j The risk management of contingent convertible (coco) bonds

urisdictional claims in published maps and institutional affiliations.Illis Springer imprint is published by the registered company Springer Nature Sw

The risk management of contingent convertible (coco) bonds

itzerland AGThe registered company address is: Gewerbestrasse 11. 6330 Cham. SwitzerlandPrefaceThe financial crisis of 2007-2008 triggered an avalanch

SPRINGER BRIEFS IN FINANCEJan De Spiegeleer Ine Marquet Wim SchoutensThe Risk Management of Contingent Convertible (CoCo) BondsSpringerMore informatio

The risk management of contingent convertible (coco) bondsuts in the future and designing a more stable banking sector, in general, requires both higher capital levels and regulatory capital of a higher quali

ty. In the new banking regulations, created in the aftermath of the crisis, the financial instruments called contingent convertible (CoCo) bonds play The risk management of contingent convertible (coco) bonds

an important role.The CoCo market was launched in December 2009 by the exchange of old-style hybrids into new CoCo bonds by Lloyds Banking Group. In 2

The risk management of contingent convertible (coco) bonds

010, Rabobank followed with an issue size of €125 bn. This issue was twice oversubscribed. The CoCo market experienced an exponential growth in 2013.

SPRINGER BRIEFS IN FINANCEJan De Spiegeleer Ine Marquet Wim SchoutensThe Risk Management of Contingent Convertible (CoCo) BondsSpringerMore informatio

The risk management of contingent convertible (coco) bonds-down of the face value upon the appearance of a trigger event. The loss-absorbing mechanism is automatically enforced either via the breaching of a p

articular accounting ratio, typically in terms of the Common Equity Tier I (CETI) ratio, or via a regulator forcing to trigger the bond. CoCos are non The risk management of contingent convertible (coco) bonds

-standardised instruments with different loss absorption and trigger mechanisms and might also contain additional features such as the cancellation of

The risk management of contingent convertible (coco) bonds

the coupon payments.We provide the reader an overview of the risk components of a CoCo bond and created more insights into the instruments' sensitivi

SPRINGER BRIEFS IN FINANCEJan De Spiegeleer Ine Marquet Wim SchoutensThe Risk Management of Contingent Convertible (CoCo) BondsSpringerMore informatio

The risk management of contingent convertible (coco) bondsmodels use market data such as share prices. CDS levels and implied volatility in order to calculate the theoretical price of a CoCo bond.The sensitiv

ity analysis of the theoretical CoCo price resulted in estimates for the sensitivity parameters with respect to the underlying stock price, the intere The risk management of contingent convertible (coco) bonds

st rate and the credit spread. These sensitivities, called the Greeks, provide the investor with insides to hedge from adverse changes in the market c

The risk management of contingent convertible (coco) bonds

onditions. A performance study of the model CoCo price derived with the Greeks compared

SPRINGER BRIEFS IN FINANCEJan De Spiegeleer Ine Marquet Wim SchoutensThe Risk Management of Contingent Convertible (CoCo) BondsSpringerMore informatio

SPRINGER BRIEFS IN FINANCEJan De Spiegeleer Ine Marquet Wim SchoutensThe Risk Management of Contingent Convertible (CoCo) BondsSpringerMore informatio

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