This book provides an overview of the risk components of CoCo bonds. CoCos are hybrid financial
instruments that convert into equity or suffer a write-down of the face value upon the
appearance of a trigger event. The loss-absorption mechanism is automatically enforced either
via the breaching of a particular accounting ratio typically in terms of the Common Equity
Tier 1 (CET1) ratio or via a regulatory trigger. CoCos are non-standardised instruments with
different loss-absorption and trigger mechanisms. They might also contain additional features
such as the cancellation of coupon payments. Different pricing models are discussed in detail.
These models use market data such as share prices CDS levels and implied volatility in order
to calculate the theoretical price of a CoCo bond and its sensitivities providing the investor
with insides to hedge from adverse changes in the market conditions. The audience are
professionals as well as academics who want to learn how to risk manage CoCo bonds using
cutting edge techniques as well as all the risk involved in CoCo bonds.
