Title page
Contents
Abstract 2
1. Introduction 3
2. Model 8
2.1. After conversion 9
2.2. Before conversion 10
3. CoCos with Equity Conversion Modality 11
3.1. Arithmetic of CoCos' conversion rule 11
3.2. Optimal conversion and smooth pasting conditions 12
3.3. How to implement the optimal conversion threshold? 13
4. CoCos with Write-Down Modality 15
4.1. Conversion trigger and ratio 16
4.2. The Curious Case of Credit Suisse 23
5. Optimal Capital Structure and Simulations 24
5.1. Optimal Coupon 24
5.2. Optimal capital structure simulations 25
6. Conclusion 28
References 30
Appendix 33
A. Detailed derivations 33
B. Equity-Conversion 36
C. Write-Down 38
D. Optimal coupons 41
E. Simulations of three Write-Down scenarios 42
Table 1. Baseline parameters 25
Figure 1. CoCo versus high yield indices 4
Figure 2. Equity conversion 15
Figure 3. Non-monotonicity of equity in assets 17
Figure 4. Write-down conversion space 18
Figure 5. Write-Down conversion space with equity issuance 21
Figure 6. Write-down with asset sale equity impact 22
Figure 7. Optimal coupons and thresholds 26
Figure 8. Optimal value, capital ratio, and conversion patterns 27
Figure 9. Optimal coupons and thresholds 43
Figure 10. Optimal value, capital ratio and conversion patterns 44