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

Reading this Book

The target audience for this work on hybrid securities is very broad. The absolute beginner will find in it a sufficient course to become familiar with this asset class. More advanced users working in areas such as trading, portfolio, or risk management will be introduced in detail to the latest advances in numerical techniques to value and hedge these instruments. Hybrid financial instruments combine properties of both shares and corporate bonds into one, but mastering their price dynamics is far from a walk in the park. Blending the properties of two easy-to-understand asset classes such as equity and bonds into a hybrid does not leave us with an instrument having straightforward properties. Hybrids are therefore often misunderstood and mis-sold: what for some looks like an equity instrument with bond-like risk could turn out to deliver a bond-like return with equity volatility. The reality is hence very different from the perceived risk and results in an asset that can have multiple sources of risk: market risk, default risk, different levels of equity and interest rate convexity, etc. In the case of contingent convertibles, the newest category in hybrid debt, there are phenomena such as the “death spiral” that deserve our attention. These are situations where a forced conversion of a bond into shares would trigger a wave of sell orders on the underlying share. This book devotes different chapters to CoCo bonds, including the newly developed pricing models, ...