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The Handbook of Hybrid Securities: Convertible Bonds, CoCo Bonds and Bail-In

Book Description

Introducing a revolutionary new quantitative approach to hybrid securities valuation and risk management

To an equity trader they are shares. For the trader at the fixed income desk, they are bonds (after all, they pay coupons, so what's the problem?). They are hybrid securities. Neither equity nor debt, they possess characteristics of both, and carry unique risks that cannot be ignored, but are often woefully misunderstood. The first and only book of its kind, The Handbook of Hybrid Securities dispels the many myths and misconceptions about hybrid securities and arms you with a quantitative, practical approach to dealing with them from a valuation and risk management point of view.

  • Describes a unique, quantitative approach to hybrid valuation and risk management that uses new structural and multi-factor models

  • Provides strategies for the full range of hybrid asset classes, including convertible bonds, preferreds, trust preferreds, contingent convertibles, bonds labeled "additional Tier 1," and more

  • Offers an expert review of current regulatory climate regarding hybrids, globally, and explores likely political developments and their potential impact on the hybrid market

  • The most up-to-date, in-depth book on the subject, this is a valuable working resource for traders, analysts and risk managers, and a indispensable reference for regulators

  • Table of Contents

      1. 1.1 Introduction
      2. 1.2 Hybrid Capital
      3. 1.3 Preferreds
      4. 1.4 Convertible Bonds
      5. 1.5 Contingent Convertibles
      6. 1.6 Other Types of Hybrid Debt
      7. 1.7 Regulation
      8. 1.8 Bail-In Capital
      9. 1.9 Risk and Rating
      10. 1.10 Conclusion
      1. 2.1 Introduction
      2. 2.2 Anatomy of a Convertible Bond
      3. 2.3 Convertible Bond Arbitrage
      4. 2.4 Standard Features
      5. 2.5 Additional Features
      6. 2.6 Other Convertible Bond Types
      7. 2.7 Convertible Bond Terminology
      8. 2.8 Convertible Bond Market
      9. 2.9 Conclusion
      1. 3.1 Introduction
      2. 3.2 Definition
      3. 3.3 Anatomy
      4. 3.4 CoCos and Convertible Bonds
      5. 3.5 CoCos and Regulations
      6. 3.6 Ranking in the Balance Sheet
      7. 3.7 Alternative Structures
      8. 3.8 Contingent Capital: Pro and Contra
      1. 4.1 Introduction
      2. 4.2 Issuer of Hybrid Debt
      3. 4.3 Investing in Hybrid Debt
      4. 4.4 Structure of a Corporate Hybrid Bond
      5. 4.5 View of Rating Agencies
      6. 4.6 Risk in Hybrid Bonds
      7. 4.7 Convexity in Hybrid Bonds
      8. 4.8 Equity Character of Hybrid Bonds
      1. 5.1 Introduction
      2. 5.2 Definition
      3. 5.3 Resolution Regime
      4. 5.4 Case Studies
      5. 5.5 Consequences of Bail-In
      6. 5.6 Conclusion
      1. 6.1 Introduction
      2. 6.2 Heuristic Approaches
      3. 6.3 Building Models
      4. 6.4 How Many Factors?
      5. 6.5 Sensitivity Analysis
      1. 7.1 Introduction
      2. 7.2 Probability Density Functions
      3. 7.3 Brownian Motion
      4. 7.4 Ito Process
      5. 7.5 Poisson Process
      1. 8.1 Introduction
      2. 8.2 Closed-Form Solution
      3. 8.3 Tree-Based Methods
      4. 8.4 Finite Difference Technique
      5. 8.5 Monte Carlo
      1. 9.1 Tail Risk in Hybrids
      2. 9.2 Jump Diffusion
      3. 9.3 Correlation
      4. 9.4 Structural Models
      5. 9.5 Conclusion
      1. 10.1 Credit Spread
      2. 10.2 Default Intensity
      3. 10.3 Credit Default Swaps
      4. 10.4 Credit Triangle
      5. 10.5 Stochastic Credit
      1. 11.1 From BlackÔÇôScholes to CEV
      2. 11.2 Historical Parameter Estimation
      3. 11.3 Valuation: Analytical Solution
      4. 11.4 Valuation: Trinomial Trees for CEV
      5. 11.5 Jump-Extended CEV Process
      6. 11.6 Case Study: Pricing Mandatories With CEV
      7. 11.7 Case Study: Pricing Convertibles with a Reset
      8. 11.8 Calibration of CEV
      1. 12.1 Introduction
      2. 12.2 Credit Derivatives Method
      3. 12.3 Equity Derivatives Method
      4. 12.4 Coupon Deferral
      5. 12.5 Using Lattice Models
      6. 12.6 Linking Credit to Equity
      7. 12.7 CoCos with Upside: CoCoCo
      8. 12.8 Adding Stochastic Credit
      9. 12.9 Avoiding Death Spirals
      10. 12.10 Appendix: Pricing Contingent Debt on a Trinomial Tree
      1. 13.1 Introduction
      2. 13.2 Early Exercise
      3. 13.3 American Monte Carlo
      4. 13.4 Multi-Factor Models
      5. 13.5 Conclusion