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On the Valuation of Contingent Convertibles (CoCos): Analytically Tractable First Passage Time Model for Pricing AT1 CoCos
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2016 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
Värdering av CoCos (Contingent Convertibles) genom AT1P (Analytically Tractable First Passage Time) modellen (Swedish)
Abstract [en]

Contingent Convertibles (CoCos) are a new type of hybrid debt instrument characterized by forced equity conversion or write-down under a specified trigger event, usually indicating a state of near non-viability of the Additional Tier 1 capital category, giving them additional features such as possible coupon cancellation. In this thesis, the structure of CoCos is presented and different pricing approaches are introduced. A special focus is put on structural models with the Analytically Tractable First Passage Time(AT1P) Model and its extensions. Two models are applied on the write-down CoCo issued by Svenska Handelsbanken, starting with the equity derivative model and followed by the AT1P model.

Abstract [sv]

Contingent Convertibles (Cocos) - villkorade konvertibla obligationer, är en ny typ av hybridinstrument som kännetecknas av konvertering till eget kapital eller nedskrivning av lånet vid en viss utlösande händelse, som vanligtvis indikerar ett tillstånd där den emitterande banken har behov av att absorbera förluster. Under strikta villkor kan dessa CoCo obligationer tillhöra primärkapital, där de kännetecknas av bland annat möjlig inställning av kuponger. I denna avhandling presenteras CoCons struktur och olika prissättningsmodeller läggs fram. Ett särskilt fokus läggs på strukturella modeller med “Analytically Tractable First Passage Time (AT1P) Model” och dess utvidgningar. Två modeller tillämpas på CoCon emitterad av Svenska Handelsbanken: “equity derivative” modellen och AT1P modellen. 

Place, publisher, year, edition, pages
TRITA-MAT-E, 2016:32
Keyword [en]
Contingent Convertibles, Pricing, Structural model, First passage time model, AT1P model, Calibration.
National Category
Probability Theory and Statistics
URN: urn:nbn:se:kth:diva-188792OAI: diva2:941344
Subject / course
Mathematical Statistics
Educational program
Master of Science - Applied and Computational Mathematics
Available from: 2016-06-22 Created: 2016-06-17 Last updated: 2016-06-22Bibliographically approved

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