EconPapers    
Economics at your fingertips  
 

Contingent Convertibles with Stock Price Triggers: The Case of Perpetuities

George Pennacchi and Alexei Tchistyi
Additional contact information
George Pennacchi: University of Illinois
Alexei Tchistyi: University of Illinois

No 331, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: Initial proposals for bank contingent convertibles (CoCos) envisioned that these bonds would convert to equity when the bank's stock price declined to a pre-specifi ed trigger. Subsequent research claimed that doing so causes the stock price to have multiple equilibria or no equilibrium. We show that when CoCos are perpetuities, which characterizes most actual CoCos, a unique stock price equilibrium exists except under unrealistic conditions. Unique equilibria occur when conversion favors or disfavors CoCo investors, when CoCos convert to equity or are written down, and when CoCos are callable. We also analyze a banks choice of risk before and after conversion.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2018/paper_331.pdf (application/pdf)

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:red:sed018:331

Access Statistics for this paper

More papers in 2018 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2019-01-31
Handle: RePEc:red:sed018:331