Optimal Volatility, Covenants and Cost of Capital Under Basel III Bail-In

Comparing Alternate Methods for Calculating CVA Capital Charges under Basel III

The global financial crisis brought counterparty credit risk and CVA very much into the spotlight. The Basel III proposals first published in December 2009 [2] introduced changes to the Basel II rules [1] including a new capital charge against the volatility of CVA. As the Basel committee noted, two thirds of the counterparty risk related losses during the credit crisis were actually from CVA v...

New Basel Capital Accord

Counterparty Credit Risk in OTC Derivatives under Basel III

Recent financial crises were the root of many changes in regulatory implementations in the banking sector. Basel previously covered the default capital charge for counterparty exposures however, the crisis showed that more than two third of the losses related to this risk emerged from the exposure to the movement of the counterparty’s credit quality and not its actual default therefore, Basel I...

Bail-in Capital: The New Box

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 c...

Enhanced Prudential Standards Under Basel Iii: What Consequences For The Profitability Of Banks

Since the subprime financial crisis, international financial regulatory institutions (Basel, MIFID, Dodd-Frank), have strengthened regulatory requirements on systemically important banks. The Basel Committee on Banking Supervision, and based on the G20 recommendations, has drawn up a reform program to reconfigure the banking system, based mainly on increasing the capital requirement. The progra...