for regulatory capital securities

WE PROVIDE THE SOLUTION FOR ASSET MANAGEMENT

CoCo33 is a pricing and risk management framework for regulatory capital securities issued by banks following the Basel III capital adequacy requirements. It can be extended to cover regulatory capital securities issued by insurance companies
according to the Solvency II regulations.

It relies on a powerful equity-to-credit regime switching reduced form model with stochastic bail-in intensities and stochastic credit to analyse AT1 CoCo bonds, perpetual non-cumulative preferred shares and Tier 2 bonds issued by banks. The regime switching model is jointly calibrated on the market quotes of all relevant securities related to the issuing bank such as credit default swaps, options and bonds, on top of the regulatory instruments themselves. Joint calibration allows for consistent pricing and leads to meaningful hedge ratios and risk parameters.

Once the model for the underlying issuing company is specified, either through calibration or manually, it can be used to evaluate the regulatory securities, to produce hedge ratios or risk parameters, or to analyse various risk scenarios. The product includes a database of terms and conditions and a technology to serialize and store either the model parameters or the entire environment used in the calibration.

CoCo33 libraries are designed to integrate smoothly into existing risk management or front office systems. Excel add-ins offer an intuitive way to deploy the solution on a desk. A simple and intuitive Excel based utility is provided to test the various functionalities of the product.

It relies on a powerful equity-to-credit regime switching reduced form model with stochastic bail-in intensities and stochastic credit to analyse AT1 CoCo bonds, perpetual non-cumulative preferred shares and Tier 2 bonds issued by banks. The regime switching model is jointly calibrated on the market quotes of all relevant securities related to the issuing bank such as credit default swaps, options and bonds, on top of the regulatory instruments themselves. Joint calibration allows for consistent pricing and leads to meaningful hedge ratios and risk parameters.

Once the model for the underlying issuing company is specified, either through calibration or manually, it can be used to evaluate the regulatory securities, to produce hedge ratios or risk parameters, or to analyse various risk scenarios. The product includes a database of terms and conditions and a technology to serialize and store either the model parameters or the entire environment used in the calibration.

CoCo33 libraries are designed to integrate smoothly into existing risk management or front office systems. Excel add-ins offer an intuitive way to deploy the solution on a desk. A simple and intuitive Excel based utility is provided to test the various functionalities of the product.

Once the model has been calibrated to the equity-to-credit universe, CoCo33 proposes numerous functionalities to analyse the regulatory securities. CoCo33 currently provides the following outputs for a given regulatory capital instrument:

- The price of the instrument with the various usual market conventions (clean or dirty, as a percentage of nominal).
- The price of the instrument assuming that it is called by the isuer at the next call date.
- The price of the instrument in the second regime, that is if a credit downgrade were to occur instantly.
- The Delta of the model (the first derivative of the price of the instrument with respect to the price of the stock of the underlying issuing company). It is meaningful for CoCos which convert into equity upon trigger of the bail-in.
- The yield to maturity in case of a T2 bond with finite maturity.
- The yield to next call for a perpetual AT1 bond or a perpetual preferred share.
- The optimal joint hedge ratios on the underlying and a CDS.