University of Groningen
The design and pricing of hybrid debt
Vullings, Daniël
DOI:
10.33612/diss.160493919
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Publication date: 2021
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Vullings, D. (2021). The design and pricing of hybrid debt. University of Groningen, SOM research school. https://doi.org/10.33612/diss.160493919
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1. CoCos with floating coupons that compensate for changes in the expected loss at conversion have a unique competitive equilibrium price, even in a discrete time model. (Chapter 1)
2. The value of CoCos that convert to equity based on a market trigger, is not generally monotonous in the asset value of the issuing firm. (Chapter 1)
3. A discrete-time model with heterogeneous investors in terms of market power, where investor portfolio decisions influence the market price of equity, can lead to a unique equilibrium price for assets with endogenous changes in cash-flows. (Chapter 2)
4. The pricings of CoCos with a market trigger, equities of firms in a market capitalization based index and equities of firms where management makes decisions based on the market capitalization suffer from the same endogeneity problem. (Chapter 2)
5. A competitive pricing model is not suitable to price an asset whose trading price influences the cash-flows of the asset. (Chapter 2)
6. The standard CoCo design cannot completely mitigate risk-taking incentives. (Chapter 3)
7. RIC-bonds are suitable to mitigate risk taking incentives, by forcing firms to pay additional coupon payments when the firm cash-flows are high. (Chapter 3)
8. RIC bonds are interesting for a firm to issue as they can lead to lower borrowing costs and consequently a higher firm value. (Chapter 3)
9. Although hybrid debt is interesting to study and could have applications in practice, higher equity levels are the most feasible solution to mitigate the problems of excessive risk taking and low capital buffers.
