Steering a Bank Around a Death Spiral: Multiple Trigger CoCos – Wilmott Magazine Article – Jan De Spiegeleer & Wim Schoutens

In this paper we start with the introduction of two pricing models to value contingent convertibles. One model (“rule of thumb”) has its roots in credit derivatives pricing while the second model implements an equity derivatives approach. From these models we then quantify the equity sensitivity and the negative gamma resulting from the design of a contingent convertible and illustrate the possible pitfalls of a death spiral on the share price.

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