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Contingent Capital Explained (Part 1)


Contingent Capital Explained (Part 1)
Presenter: Wim Schoutens: Research Professor, Financial Engineering, Catholic University of Leuven, Belgium

Course Running Time: 4 Hours 45 Minutes

Session 1: (Running Time: 1:10:00)

Session 2 (Running Time: 38:50)

Session 3: (Running Time: 13:32)

Session 4 (Running Time: 45:04)

Session 5: (Running Time: 1:26:37)

Session 6 (Running Time: 30:35)

About the course:

The course takes a very pragmatic and practical approach and employs a lot of numerical examples. The financial landscape went since 2010 through one of the biggest regulatory overhauls ever: Basel III, the Swiss-finish, CRD4 and the ICB-Vickers report all have made statements about the concept of contingent capital. The course covers and describes the construction of CoCos (Contingent Convertibles) in the light of these latest reforms. Furthermore, the course goes extensively into the price setting question of CoCos and the related dynamics. We provide insight in rule of thumbs pricing and elaborate on more advanced methods. The pricing theory is applied and illustrated with the Lloyds and Credit Suisse CoCos. Practical examples and market data is used throughout the course. Furthermore, the delegates will be guided through a hands-on explanation with numerical examples of the dynamics of CoCos. Potential effects of the death-spiral are discussed. The course is a must for all financial professionals and sheds a light on the intricacies of contingent capital from the structuring, pricing, hedging and regulatory point of view.

Contingent Capital Explained (Part 1)

What are CoCos?

  • Basic intro to the concept of contingent capital
  • History and key events
  • The life of a CoCo
  • Bail-in
  • Pro's and Cons of CoCos

CoCo Triggers

  • Accounting, regulatory and market based triggers
  • Write-down/write-up CoCos
  • CoCos Analogies

Regulatory Aspects

  • Changes in the regulatory landscape
  • CoCos as new capital instruments
  • CoCos in the light of Basel III, CRD4 and other regulatory proposals
  • CoCo Bonuses

The CoCos Market

  • Examples of recent issues
  • CoCo performance
  • CoCo investors

Quantitative Aspects of CoCos

  • Rule of Thumb pricing; the CoCo triangle
  • Case Study: Rule of Thumb pricing of the Lloyds, CS, UBS and Barclays CoCos
  • Equity derivative based methods
  • Case Study: Equity Derivative pricing of the Lloyds, CS, UBS and Barclays, KBC, CoCos
  • Advanced models
  • Case Study: Determining the coupon of a new coco issue.


Convertible Bonds

Published date

7 March 2014



Presenter Bio

Wim Schoutens

Wim Schoutens (Leuven, Belgium) is professor in financial engineering at the Catholic University of Leuven, Belgium. He has extensive practical experience of model implementation and is well known for his consulting work to the banking industry and other institutions. He is an independent expert advisor to the European Commission (DG-COMP) on “State aid assessment of valuation of impaired assets and of asset relief measures” and has assessed in that position more than EUR 1 trillion of assets; in particular he was one of the main expert advisors for the stress test on the Spanish banks and the related bailouts. Wim is the author of several books including “Contingent Convertibles (CoCos) : Structure and Pricing”, the first book ever on Contingent Capital and CoCo bonds (written together with Jan De Spiegeleer). Further he has been (co)author of the Wiley books “Lévy Processes in Finance”, “Lévy Processes in Credit Risk”, and “The Handbook of Convertible Bonds” and the Springer books “Quantitative Assessment of Securitisation Deals” and “Stochastic Processes and Orthogonal Polynomials”. He is Managing Editor of the International Journal of Theoretical and Applied Finance and Associate Editor of Quantitative Finance, Mathematical Finance and Review of Derivatives Research and International Journal of Portfolio Analysis & Management. Further, he is series editor of the book series "Financial Engineering Explained" for Palgrave Macmillan.

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Contingent Capital Explained (Part 2)

4 March 2014