  After the beginning of the credit and liquidity crisis, financial
institutions have been considering creating a convertible-bond type contract
focusing on Capital. Under the terms of this contract, a bond is converted into
equity if the authorities deem the institution to be under-capitalized. This
paper discusses this Contingent Capital (or Coco) bond instrument and presents
a pricing methodology based on firm value models. The model is calibrated to
readily available market data. A stress test of model parameters is illustrated
to account for potential model risk. Finally, a brief overview of how the
instrument performs is presented.
