Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202862 
Year of Publication: 
2017
Series/Report no.: 
Danmarks Nationalbank Working Papers No. 122
Publisher: 
Danmarks Nationalbank, Copenhagen
Abstract: 
Credit institutions are to an increasing extent using Contingent Convertible Bonds (CoCos) to meet part of their capital requirements, which could suggest that the market for CoCos contains useful information on the robustness of the issuer. This paper gives a thorough introduction to CoCos - the product, its use in capital regulation, the market and the specific risks faced by investors. To illustrate which information potentially can be extracted from the price level and change in prices of CoCos, we introduce models which incorporate most of the characteristics and risks of CoCos. The models illustrate how the complexity of CoCos makes them difficult to use when assessing the soundness of the issuer; in addition to this the many CoCospecific risks make it questionable whether the cost of CoCos constitutes a lower bound for the cost of equity.
Abstract (Translated): 
Kreditinstitutter benytter i stigende omfang Contingent Convertible Bonds (CoCo'er) til at opfylde en andel af deres kapitalkrav, hvilket kan gøre markedet for CoCo'er interessant i forhold til at udlede information ominstitutternes robusthed. Denne artikel giver en grundig introduktion til CoCo'er - produktet, dets brug i reguleringen, markedet og de specifikke risici, som investorerne står overfor. Til at illustrere, hvilken information der potentielt kan udledes af CoCo'ernes prisniveau og -ændringer, benytter vi modeller, som inkorporerer de fleste af CoCo'ernes karakteristika og indbyggede risici. Modellerne illustrerer, hvordan kompleksiteten i produktet gør det svært at bruge CoCo'er til at udlede information om udstederens finansielle tilstand, ligesom de mange CoCo-specifikke risici gør det usikkert, om prisen på CoCo'er udgør en nedre grænse for prisen på egenkapital.
Subjects: 
Financial regulation
Financial stability
Financial sector
Financial risks
Models
JEL: 
G01
G12
G21
G23
G28
G32
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.