%0 Journal Article
	%A Manu Krishnan and  Phil Jacoby
	%D 2012
	%J International Journal of Economics and Management Engineering
	%B World Academy of Science, Engineering and Technology
	%I Open Science Index 61, 2012
	%T Bail-in Capital: The New Box
	%U https://publications.waset.org/pdf/7141
	%V 61
	%X In this paper, we discuss the paradigm shift in bank
capital from the “gone concern" to the “going concern" mindset. We
then propose a methodology for pricing a product of this shift called
Contingent Capital Notes (“CoCos"). The Merton Model can
determine a price for credit risk by using the firm-s equity value as a
call option on those assets. Our pricing methodology for CoCos also
uses the credit spread implied by the Merton Model in a subsequent
derivative form created by John Hull et al . Here, a market implied
asset volatility is calculated by using observed market CDS spreads.
This implied asset volatility is then used to estimate the probability of
triggering a predetermined “contingency event" given the distanceto-
trigger (DTT). The paper then investigates the effect of varying
DTTs and recovery assumptions on the CoCo yield. We conclude
with an investment rationale.
	%P 88 - 92