On Pricing Contingent Capital Notes

Dilip B. Madan
Additional contact information
Dilip B. Madan: Robert H. Smith School of Business, University of Maryland, College Park, MD. 20742, USA

Chapter 2 in Recent Advances in Financial Engineering 2011, 2012, pp 21-42 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractA bank's stock price is modeled as a call option on the spread of random assets over random liabilities. The logarithm of assets and liabilities are jointly modeled as driven by four variance gamma processes and this model is estimated by calibrating to quoted equity options seen as compound spread options. On defining riskweighted assets as asset value less the bid price plus the ask price of liabilities less the liability value we endogenize capital adequacy ratios following the methods of conic finance for the bid and ask prices. All computations are illustrated on CSGN.VX, ADRed into USD on March 29 2011.

Keywords: Financial Engineering; Mathematical Finance; Money & Banking; Risk Management; Real Option; Corporate Finance; Computational Finance (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789814407335_0002 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789814407335_0002 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789814407335_0002

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().