In this paper we propose a new security, the Call Option Enhanced Reverse Convertible (COERC). The security is a form of contingent capital, i.e. a bond that converts to equity when the market value of equity or capital falls below a certain trigger. The conversion price is set significantly...

This paper introduces, analyzes, and values a new form of contingent convertible (CoCo), a Call Option Enhanced Reverse Convertible (COERC). Issued as a bond, it converts to new shareholders' equity if a bank's market value of capital falls below a pre-specified trigger. The COERC avoids the...

Extensive regulatory changes and technological advances have transformed banking systems to a great extent. Banks have reacted to the challenges posed by the new operating environment by creating new products and expanding their activities to some uncharted business areas. In this paper, we...

This paper introduces, analyzes, and values a new form of contingent convertible (CoCo), a Call Option Enhanced Reverse Convertible (COERC). Issued as a bond, it converts to new shareholders' equity if a bank's market value of capital falls below a pre-specified trigger. The COERC avoids the...

This paper introduces, analyzes, and values a new form of contingent convertible (CoCo) bond, a Call Option Enhanced Reverse Convertible (COERC). If an issuing bank’s market value of capital falls below a trigger, COERC investors would be issued many new equity shares that would heavily dilute...

We explore an inconsistency in the Basel Committee's Internal Ratings Based (IRB) rules: the IRB rules on corporate loans were calibrated to loan-level data, while the IRB rules on small business loans were calibrated with little, if any, information on small business loans. We argue that the...

We explore an inconsistency in the Basel Committee's Internal Ratings Based (IRB) rules: the IRB rules on corporate loans were calibrated to loan-level data, while the IRB rules on small business loans were calibrated with little, if any, information on small business loans. We argue that the...