Navigating the Complexities of Modeling Contingent Convertibles (CoCos) Under Stress Scenarios

Join us for an in-depth webinar where we unravel the intricacies of modeling Contingent Convertibles (CoCos) under stress scenarios. This session will explore the fundamental concepts behind CoCos, discussing their unique structure and their role in strengthening financial stability while balancing investor interests. Investors need to understand the risks and complexities associated with CoCo bonds, especially under stress scenarios. We will delve into the intricate mechanics of CoCos, examining how they behave and their implications for risk management and regulatory compliance.

Understand the importance of scenario analysis and effective risk management strategies, and gain insights into data availability and the importance of accurate, timely information.

Key Points:

1. Understanding Trigger Mechanisms:

• Explore capital-based triggers and regulatory discretion that can activate CoCo conversion or write-downs. 
• Learn how to model bank capital levels and the factors influencing them. 

2. Interest Rate and Extension Risk:

• Delve into the dual nature of CoCos with fixed and floating interest rates. 
• Understand the risks associated with perpetual and callable features of CoCos. 

3. Equity Barrier Option Modeling

• Discover techniques for modeling the conversion option using equity barrier options. 
• Address the challenges of modeling long-dated, deep out-of-the-money equity options. 

4. Adapting to Market Conditions and Liquidity:

• Learn dynamic modeling approaches to handle rapidly changing market conditions during stress scenarios. 
• Discuss the impact of market liquidity on CoCo pricing and valuation. 

5. Regulatory and Market Sentiment:

• Examine the role of regulatory decisions and market sentiment in CoCo valuations. 
• Case study: The full write-down of Credit Suisse CoCo bonds during the 2023 banking crisis. 

Who Should Attend:

• Asset managers, risk managers, and investment professionals. 
• Anyone interested in understanding the complexities of CoCos and their behavior under stress scenarios.