CoCo33 draws its robustness from a unique feature: its model is calibrated on all the relevant instruments related to an issuer. For a bank, those instruments include the AT1 bonds or preferred shares, the Tier 2 bonds, and possibly the subordinated or senior CDS following the ISDA 2003 or 2014 definitions. Once the model is calibrated, it is possible to infer a wide range of risk statistics and to assess if a security is relatively cheap or expensive.
On top of the usual fixed income risk outputs and scenarios, CoCo33 offers a range of innovative risk data related to the extension risk and the sub-optimal behaviour of the issuer at the call decision dates.
PriceToCall and YieldToCall: the price and yield of the security assuming that it will be called by the issuer at the next call date with certainty
PriceNoCall and YieldNoCall: the price and yield of the security assuming no call
PriceOptimal: the price the security would have assuming an optimal call decision by the issuer
CallValue: the value of the calls for the issuer
SuboptimalCallValue: the value given to investors as a result of a suboptimal call policy (gentleman agreement to call when calling is not optimal)
SuboptimalCallProba: the probability that the issuer will call when doing so is not optimal because the value of the bond is lower than the call price
ExtensionProba: the probability that the security will be extended (not called) at the next call date assuming a suboptimal call policy
OptimalExtensionProba: the probability that the security will be extended (not called) at the next call date following an optimal call policy
Duration: the duration of the instrument assuming a suboptimal call policy
OptimalDuration: the duration under an optimal call policy
CoCo33 can be deployed as an internal tool or can be subscribed as a service. The service includes:
The maintenance of a database of terms and conditions for the instruments in the universe
The calibrations at the end of the day for all the issuers in the universe
The daily distribution of an agreed list of risk parameters
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